Moving Averages: Trend Trading

At any one time in the market, both long-term and short-term price trends are at work. Sometimes, the short-term and long-term trends are in agreement and move in the same direction. At other times, the short-term trend will diverge from the long-term trend. Ultimately the strength of the long-term trend forces the short-term to realign itself with the long-term. By using several Moving Averages of varying periods, a trader can track long-term and short-term trends simultaneously.

Using a combination of two Moving Averages of varying periods is the basis for popular technical buy/sell systems. The crossing of a shorter-term moving average over a longer-term moving average is a signal that the prior long-term trend may be shifting direction.


Moving Average Cross

Technical analysts consider it a sell sign when the 10-period moving average crosses below the 50-period Moving Average. Conversely, traders see a buy signal when the 10-period Moving Average crosses above the 50 period Moving Average. This cross indicates that the short-term trend has turned from down to up, signaling a possible trend change on the larger scale.

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