Trading strategy for day traders: The Moving Average Crossover


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Ready for a simple trading strategy? This day trading strategy has only 2 Moving Averages, so if you can count to 2 you can trade this strategy.

In this blogpost you will discover how you can trade profitably with just 1 indicator on your chart: the MA Cross. With this trading strategy we aim for the crossing of 2 moving averages.

What is a moving average

Before I explain this MA cross trading strategy, let’s do a short lesson in moving averages.

The moving average (MA) is a simple indicator that is used in technical analysis. This indicator shows historical price data as an average price that is constantly updated.

The average is calculated over a certain period. For example 9 days, 15 minutes, 52 weeks or whatever period an trader chooses. Moving averages can therefore be used by both longer-term investors and short-term traders.

How is a moving average calculated?

That depends a bit on the variant. There are different types of moving averages, but if we take the Simple Moving Average (SMA), then you add up all the closing prices for a certain period of for example 10 days and divide that number by 10.

I could explain all formulas here, but luckily your trading platform calculates this for you.

If there are any nerds who want to know more about the mathematics behind the different moving averages, let me know in the comments below and I will write a post about it.

Why are moving averages useful?

Moving averages can help you in your trading strategy, because they act as support and resistance levels. And if you use a short and a long moving average, they can indicate a change in the trend.

And that trend change is the one I’ll focus on in this moving average strategy.

Here’s a another blogpost about trading moving averages, that focuses on trading support and resistance:

Here’s what you need for this trading strategy

Shopping list for MA cross strategy:

  • Account with a broker
  • The MA Cross indicator
  • Nice cup of coffee πŸ™‚

If you do not have an account yet, I advise you to open one with the broker below. You can practice with them for an unlimited amount of time and test this strategy.

Get your free BDSwiss demo account…

78,3% of retail CFD accounts lose money

Slap the indicator on your charts

First of all you have to conjure up the MA Cross indicator on your chart. This differs a bit per broker or platform, but if you use TradingView, you can find it here:

 How to put the MA Cross indicator on your graph
How to put the MA Cross indicator on your chart

Once you have placed the indicator, your chart will look like this:

What the MA Cross indicator looks like on your chart
What the MA Cross indicator looks like on your chart

Two moving averages have now been added to your chart. A short 9 period (red) and a long of 21 period (green). You can adjust the colors or thickness yourself.

If your platform doesn’t have the MA Cross indicator you can just add the two moving averages yourself.

Trading rules for the MA cross strategy

Smart readers can probably already see it, but below I explain the rules for this strategy.

Buy or go long

  • Both moving averages move below the current price
  • The MA 9 (red) crosses above the MA 21 (green)
  • Entry (buy / go long) on the next candle or break
  • Stop loss below swing low or support
  • Take profit (exit) next resistance or on bearish MA cross
MA Cross long trade
MA Cross long trade

Above you see a 1 hour chart of EUR/USD. At the blue plus symbol you see that the moving averages cross below the current price. If you want to enter aggressively, you can buy (long) right away. If you want to enter defensively, you wait for the next candle or a break of the previous high.

Place the stop loss below the last swing low or support. Your take profit is just below the next resistance or when you see a bearish MA Cross in the other direction.

Sell ​​or go short

  • Both moving averages move above the current price
  • The MA 9 (red) crosses below the MA 21 (green)
  • Entry (sell / go short ) on the next candle or break
  • Stop loss above swing high or resistance
  • Take profit (exit) next support or on bullish MA Cross
MA Cross short trade
MA Cross short trade

Above you see a 30 minute chart of Bitcoin. At the blue plus symbol you see that the moving averages cross above the current price. If you want to enter aggressively, you can sell (short) right away. If you want to enter defensively, you wait for the next candle or a break of the previous high.

You place the stop loss above the last swing high or resistance. Your take profit is just above the next support or when you see a bullish MA Cross in the other direction.

In this case the trade is still open and in nice profit.

Lost trade

No trading strategy is 100% bulletproof, so I will also show you a signal below that ended in a loss.

MA Cross short trade
MA Cross short trade

In the example above you can see that the MAs cross at the blue plus symbol. The entry is on the next candle, the stop loss above the last swing high and the take profit just above the last support / swing low.

Unfortunately the bears were not strong enough and the stop loss is hit by the fifth candle after entry.

Tip: Although the MAs cross and there is a signal, I had not taken this trade myself, because the cross is pretty flat. For a strong signal you want the cross to be on a nice angle. Like the two you see after this one.

Tips with this trading strategy

Below some tips to increase your profitability with this strategy.

  • Stronger signals on trend change or breakouts
  • Stronger signals when the cross happen on a strong angle
  • Weaker signals in sideways market (ranges)
  • Weaker signals on shorter time frames
  • Maintain an average risk to reward ratio of 1:2
  • Works on all time frames, but higher time frames have less noise
  • Works in all markets but I have the most success with commodities and crypto and Forex.

Conclusion

The MA Cross trading strategy is very comprehensive and easy to understand. It can also be combined with other indicators or price action strategies.

Like all strategies, it is not 100% accurate, but if you follow my tips you will see that you can make good profits with it. with practice you’ll start to see which signals you should and should not take. Purely based on experience.

And of course you can gain that experience risk-free by practicing this strategy on a demo account.

Get your free BDSwiss demo account…

78,3% of retail CFD accounts lose money

Let me know in the comments what your experiences are with the MA Cross trading strategy.

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