Moving Average Crosses

Moving average crosses are one of the best ways to use moving averages. Using a moving average cross strategy requires that you use two moving averages, one fast, and one slow.

In using a fast and slow moving average, you can better confirm the support and resistance that a moving average provides to a currency pair, and improve the accuracy of your trading signals.

In the chart below, we’ve assigned a 20 period simple moving average, and a 10 period simple moving average to showcase the moving average crossover:

As you can see, the moving average provided support and resistance. When the price broke through, the short term moving average dropped below the long term moving average. Now we can see plainly that the trend will reverse. And it did!

We can also use two moving averages to define broad areas of support and resistance. Think back to the lesson on trend lines where it was explained that trend lines are not perfect points at which the price drops. Instead, trend lines show areas of support and resistance—values at which the price of a currency pair rises or falls.

In the following chart, we use two moving averages to show how the two work as support and resistance:

Additionally, we can use a single moving average as support and resistance, though the trading signals this strategy supplies may be less accurate:

In the above chart, we saw a XXXXXXXXXX pattern forming. To confirm, we waited for a break through the moving average as SUPPORT OR RESISTANCE. Now with a double confirmation, we know this trade to be a good one! It was:

Moving averages are excellent trading indicators. In the next article, we’ll recap what you have learned and then you can proceed to the quiz to confirm that what you just read stuck with you in this lesson