A moving average crossover strategy is a type of trading strategy that uses moving averages to generate buy and sell signals. Moving averages are a technical analysis tool that take the average price of a stock over a certain period of time and plot it on a chart. This can help to smooth out short-term price fluctuations and make it easier to identify longer-term trends.
A moving average crossover strategy involves calculating two or more moving averages for a stock: a short-term moving average and a long-term moving average. The moving averages are typically set at different periods, such as 20 and 50 days, or 50 and 200 days.
When the short-term moving average crosses above the long-term moving average, it is a buy signal. This indicates that the stock’s price is trending upwards and may continue to do so. On the other hand, when the short-term moving average crosses below the long-term moving average, it is a sell signal. This indicates that the stock’s price is trending downwards and may continue to do so.