There are plenty of indicators and strategies to predict the movement of the indices and shares, in the stock market. However, the moving averages have been simplistic yet effective signals to identify a trade. Though, it is a lagging indicator but works well for, intraday trading and swing trading, both.

I have been using these indicators for quite a long time for different strategies but the best strategy, which worked for me, is the moving average crossover strategy. There are two types of crossovers – A Bullish Cross and A Bearish Cross. Let’s understand them in the below paragraphs.

What is a Moving Average Crossover, in technical analysis?

A moving average crossover, as the name suggests, is the crossover of the two MAs or EMAs. In this strategy, traders apply two moving averages on the chart of an instrument and when they dissect each other, they provide a signal for a bullish or bearish trade.

What is a Bullish Cross?

When a shorter-length moving average crosses above the longer-length moving average, it is called the formation of a bullish cross. Generally, the market participants call it Golden Cross but I call it the bullish cross because, for me, the Golden Cross is the formation of a bullish cross constituting 50 days’ moving average and 200 days’ moving average.

As the name suggests, this setup is a signal for a bullish entry. You can apply two moving averages, maybe a 09-length and a 21-length, on a daily, hourly, or 15-minutes’ chart, and monitor it. When you witness that the shorter-length moving average has crossed over the longer one, you may enter a bullish trade with a stop loss below the low of the previous candle. Always remember to enter the trade only after candle formation is completed; do not take a trade in-between a running candle.

What is a Bearish Cross?

When a shorter-length moving average crosses below the longer-length moving average, it is called the formation of a bearish cross. Like the Bullish Cross, it is also called differently by different market participants; it is said Death Cross.

As the name suggests, this setup is a signal for a bearish entry. To use this strategy also, you need to apply two moving averages and wait for the shorter moving average to cross below the longer one, to enter a bearish trade. Entry should be taken below the low of the completely formed candle at which the crossover has been completed while the stop loss should be kept above the high of the previous candle.

Conclusion

The above-mentioned trading strategy, which has been incorporated by means of using moving average indicator, is a very good strategy for the novice traders. Many proficient traders also use this strategy but they remain more focused on the strategies made using leading indicators. I use this strategy for all the trading decisions I make, including my daily Nifty analysis , and I find it very useful. So, start off, you can also give it a try.