The use of moving averages is very popular among both short-term traders and long-term investors. Moving average crossovers can provide a clear picture of market trends, while also demonstrating lack of trends or sideways price action.
Traders tend to have preferences for the types and lengths of moving averages. Some might prefer using a simple moving average, while others use an exponential moving average. Some might use a five period moving average while others use a 50. One of the most popular combinations is the 9 and 18 period crossover. These moving averages are used by some traders to trade markets on an intraday basis.
How Does It Work?
It’s really simple. Here’s how it works:
- On an intraday 5 minute chart, place a 9 and 18 period exponential moving average on your chart
- When the 9 period crosses above the 18 period, go long
- When the 9 period crosses below the 18 period, go short
- If the moving averages are sideways, stay out
- Exit a long position if the 9 crosses below the 18
- Exit a short position if the 9 crosses above the 18
That’s it!
By waiting for these moving average crossovers to take place, you may have an easier time staying on the right side of the short-term trend. In addition, the strategy has very clear exit rules as well.
While such a strategy may catch some decent moves on days when a market is trending, it can also be subject to whipsaw on days when markets don’t see any real direction.
The strategy can also be tweaked with additional indicators, filters or rules. For example, rather than simply going long when the 9 period crosses over the 18, you could wait for the first pullback before going long. Another example would be using a momentum indicator to exit positions before a crossover takes place.
The 9 and 18 period moving average crossover strategy can help keep you on the right side of an intraday trend as well as intermediate-term trends if using a daily chart. However you might tweak the strategy, it reinforces the notion of being long when the trend is up and short when the trend is down.
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