Using The Triple Moving Average Crossover To Trade Securities
When trying to make a decision on whether to buy or sell a particular security, the triple moving average crossover can often provide partial guidance. As one of the most basic technical indicators, this technical indicator can provide a buy or sell recommendation based on the direction of the crossover, allowing traders to open or close positions accordingly.
What is a Moving Average A moving average draws out the average price of a specific security over a period of time. For example, a 4-day moving average will take the average security price over the past four days and draw it on the chart. Over time, this creates a trend-line. Since moving averages are based on historical data, they lag behind current stock prices. The nice thing about moving averages, however, is that short, medium and long terms can be used at the discretion of the investor or analyst, which makes them great indicators in clear-trending markets, although not so reliable in choppy, sideways markets.
Triple Moving Average Crossovers Defined As a technical indicator, the triple moving average crossover gives the trader an indication of the future direction of that security. It uses a short, medium, and long moving average and the signal is triggered when the short moving average crosses the medium, and the medium moving average crosses the long moving average. For most applications, analysts rely on 4-day, 9-day and 18-day moving averages for this indicator.
To illustrate further, this case would see the 4-day moving average cross over the 9-day, and the 9-day cross over the 18-day. With all three moving averages crossing, the analyst can make a recommendation on the position.
Trading the Triple Moving Average Crossover When the moving averages cross over one another in an upward fashion, then a bullish signal is generated. This would be an indication to purchase the security (long). Likewise, when the moving averages cross in a downward trend, traders are urged to sell the security (short).
Making decisions on current or prospective positions should rarely be based on a triple moving average crossover by itself. It is strongly recommended that analysts and investors confirm or refute the signal by reviewing the MACD (moving average convergence-divergence) and Momentum before entering or exiting a position based on technical indicators such as this.
Alternately, specific trading software can compute thousands of technical analysis signals on a daily basis and spit out a simple buy or sell recommendation. - 23196
What is a Moving Average A moving average draws out the average price of a specific security over a period of time. For example, a 4-day moving average will take the average security price over the past four days and draw it on the chart. Over time, this creates a trend-line. Since moving averages are based on historical data, they lag behind current stock prices. The nice thing about moving averages, however, is that short, medium and long terms can be used at the discretion of the investor or analyst, which makes them great indicators in clear-trending markets, although not so reliable in choppy, sideways markets.
Triple Moving Average Crossovers Defined As a technical indicator, the triple moving average crossover gives the trader an indication of the future direction of that security. It uses a short, medium, and long moving average and the signal is triggered when the short moving average crosses the medium, and the medium moving average crosses the long moving average. For most applications, analysts rely on 4-day, 9-day and 18-day moving averages for this indicator.
To illustrate further, this case would see the 4-day moving average cross over the 9-day, and the 9-day cross over the 18-day. With all three moving averages crossing, the analyst can make a recommendation on the position.
Trading the Triple Moving Average Crossover When the moving averages cross over one another in an upward fashion, then a bullish signal is generated. This would be an indication to purchase the security (long). Likewise, when the moving averages cross in a downward trend, traders are urged to sell the security (short).
Making decisions on current or prospective positions should rarely be based on a triple moving average crossover by itself. It is strongly recommended that analysts and investors confirm or refute the signal by reviewing the MACD (moving average convergence-divergence) and Momentum before entering or exiting a position based on technical indicators such as this.
Alternately, specific trading software can compute thousands of technical analysis signals on a daily basis and spit out a simple buy or sell recommendation. - 23196
About the Author:
Chris Blanchet is a technical analysis and options contributor to the online trading reviews site, Online Trader Today.com, where you can obtain a free e-book on Option Sensitivitiesl. As well, he maintains a Debt-Free Blog at How To Repay Debt.com.
posted by X - Men @ 1:42 AM
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