Companies and their stocks produce massive amounts of data, from financial details to historical price patterns. There are hundreds of ways to analyze and compare this data to determine the best time to buy and sell shares.
Some methods are fairly straightforward. For example, many investors and analysts examine ratios like price-to-earnings (P/E), debt-to-equity, return on equity (ROE), and earnings per share (EPS). This type of financial information is most likely to be included in basic or fundamental analysis of a specific stock.
Investors who are focused on short-term gains – for example, day traders and swing traders – must employ more technical methods of analyzing stock price movements. They look for patterns and trends in stock prices and volume so they can predict future movement.
Specifically, technical analysis methods include examination of price trends, volume and momentum indicators, moving averages, chart patterns, oscillators, and support/resistance levels.
Through technical analysis methods, successful investors are often able to identify the best possible moment to buy and sell shares for maximum gain when accounting for downside risk. Moving Average Crossovers are some of the strategies employed by technical investors.
Is A Moving Average Crossover a Good Indicator?
A moving average shows the average price of a stock over time. Any number of data points can be used – for example, five days, ten days, 50 days, or 200 days.
The moving average line serves to remove some of the extraneous information associated with price fluctuations to provide a clear picture of price trends – when a trend starts, how it is progressing, and any change in direction.
A moving average crossover occurs when prices intersect with or crossover the moving average line on a chart.
If the price comes in above the moving average, the implication is that an upward trend may be starting, and investors should buy. If the price comes in below the moving average, the implication is that a downward trend may be starting, and investors should sell.
The trouble is that taking action on a moving average crossover is not a reliable method of riding a trend. The single line isn’t usually enough to determine whether a new trend is beginning or some other factor is influencing prices.
Most investors interested in moving average crossover strategies employ two or three moving averages. This increases the accuracy of their predictions.
What Does a Triple Moving Average Crossover Tell You?
The triple moving average crossover is one type of technical analysis that pinpoints trends in particular stocks. When successful, it allows investors to see which direction share prices are trending.
It may alert investors to short-term changes in the trend, and it can provide support or resistance information.
Like a moving average, the triple moving average shows trends in price movement over time. However, as the name suggests, it relies on three separate trend lines to improve accuracy.
For example, a technical analyst might use a ten-day moving average, a 50-day moving average, and a 200-day moving average to firmly establish patterns.
How Do You Trade A Triple Moving Average Crossover?
In the example above, the 10-day moving average is fastest, the 50-day moving average is intermediate, and the 200-day moving average is slowest.
A triple moving average crossover occurs when the fastest-moving average crosses above the intermediate moving average, and the intermediate moving average crosses above the slowest moving average.
In this case, the 10-day moving average is above the 50-day moving average, which is above the 200-day moving average. When all of that is true, the trend is moving up, and it is time to buy.
It is time to sell when the opposite sort of crossover occurs. That is, when the fastest-moving average is below the intermediate moving average, which itself is below the slowest-moving average, the price is trending down.
In this example, the 10-day average would be below the 50-day average, and the 50-day average would be below the 200-day average.
What Does a Triple Moving Average Crossover Signify?
Any moving average crossover signifies that trends are reversing. Prices that were going up are starting to come down, and vice versa. A triple moving average offers more information, which means greater accuracy in identifying trends.
The downside to a triple moving average crossover strategy vs a moving average crossover strategy is that it only shows trends that are firmly established. That means less potential profit, as investors relying on the triple moving average crossover make moves a little later than peers using single or double moving average crossover methods.
What Is The Best Moving Average Crossover Combination?
It’s hard to determine which is the “best” moving average crossover combination because each method serves a different purpose. Therefore, what’s right for one trader might not be the best choice for another.
These strategies are useful when prices are trending in one direction or the other, but it is worth noting that moving average crossovers are somewhat ineffective when prices are fluctuating significantly or trending sideways.
In most cases, it is not recommended that moving average crossovers be used in isolation. The information gained from this type of analysis should be paired with other types of technical analysis. A combination of data points gives greater insight into price movements, allowing for more accurate – and lucrative – trades.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.