Moving Average Crossover

A crossover system compares two averages. A bullish cross, sometimes called a golden cross when it is the 50-day through the 200-day, is the short average rising through the long one. A bearish cross, a death cross in that famous pair, is the short average falling through the long one. The cross says recent closes have changed side relative to older closes.

The signal is late by the length of the averages. A 50/200 cross will not catch the first week of a turn. That is the point of a slow system: fewer signals, each one a regime label. A 5/20 cross will signal often and reverse often. Pick the lateness you can live with.

Short average crossing above the long average is the long regime. Trend followers hold until the opposite cross, or until a stop. Taking only the cross and ignoring the range that preceded it is how the system gets chopped.

Short average crossing below is the short regime, or the exit from longs, depending on the rules. One cross is not a prediction of the size of the move. Many crosses happen in the middle of a range and go nowhere.

Trading every cross in a sideways market and blaming the averages. The crossover is a trend tool. It loses when there is no trend. Also optimising the two lengths on a short sample.

A cross does not include price structure, news, or volatility. A gap can cross the averages and reverse the next day. Use it as a regime, or combine it with a filter, rather than as a complete strategy by itself.