SMA and EMA Crossover: Moving Average Trading Strategies

A Beginner's Guide to Moving Averages

Using Moving Averages to Determine Momentum

Moving averages are one of the most popular and commonly used indicators in technical analysis.
There are many on-line resources that explain for learning about moving averages. What they do. How they do it. Theories, studies and strategies based on them. Learn the basics about them from Babypips here.

Types of Moving Averages

  1. Simple Moving Average (SMA)
  2. Exponential Moving Average (EMA)
  3. Smoothed Moving Average (SMMA)
  4. Linear Weighted Moving Average (LWMA)
Learn more about these in-depth here.

Basic Moving Averages Concepts

200 Simple Moving Average.

Many traders use moving averages to help to determine the strength of a trend, and the current market momentum. The most commonly used moving average is probably the 200 SMA. Large and small investors alike are liable to have a 200 SMA on their charts. Here are some rules of thumb using the 200 SMA.


Fast Exponential Moving Average Crossovers.

Fast EMA crossover systems use faster EMAs. They look for them crossing over each other to signify there in a switch in momentum in the market. Commonly used are the 5 and 8 EMAs (some people prefer to use SMAs). Fast EMA crossovers can help to give early indications of a reversal in price.

(Please note, this is very much a trend based strategy and will not do well when the market is ranging)

In the example pictured, I have highlighted some of the areas in which we seen EMA crosses and the market reversing shortly thereafter.

https://preview.redd.it/639lyinhl6621.png?width=421&format=png&auto=webp&s=a5d3468a3b57c2d490bb75162076b0f59b94f14c
This method is also useful for staying in a good trade, waiting until the fast EMAs cross each other before exiting winning positions.

Triple (and above) SMA Systems

Multiple moving averages can be used together to give you an idea of how strong a trend is and crossovers of muliple moving averages can also be significant. The trend momentum of the recent trend can be show by the spacing of the moving averages relative to each other. If they are well spaced and not all tangled together, we are probably in a strong trending move.

https://preview.redd.it/s7qksc5zl6621.png?width=464&format=png&auto=webp&s=488be46d643bb743d6397ca0275523afd87fd301


This image shows how we’d expect to see the moving averages in a strong down-trend. Spaced apart, few touches/crosses. At other times, we will see the moving averages bunched together and tangled, this indicates a messy and range based market.


https://preview.redd.it/msxaov7em6621.png?width=508&format=png&auto=webp&s=e8d11061ad3d2dca1976aca8684309f7b0c73204
There are many different combinations of moving average periods used to build up these multiple SMA indicators and it is best to play about with them yourself and see what works for you. For a beginners guide, the combination of the 50, 100 and 200 SMAs can be a good place to start with testing out multiple SMAs.

There are many different combinations of moving average periods used to build up these multiple SMA indicators and it is best to play about with them yourself and see what works for you.
For a beginners guide, the combination of the 50, 100 and 200 SMAs has been used for a long time by many traders.

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