Moving Average Crossovers
For many years, futures, fores, and equities traders alike have been using moving average crossovers to determine trends in the market. A very common trading strategy amongst traders is to go long when a faster moving average crosses above a slower moving average, and to go short when the faster moving average crosses below the slower moving average. In the image below, you will see a chart with 2 moving averages. The orange colored line represents the faster moving average, and the green colored line represents the slower moving average. When the orange moving average crosses above the green moving average, any short trades are exited and a long trade is entered. Similarly, when the orange moving average crosses below the green moving average, any long trades are exited and a short trade is entered. This is a typical moving average crossover system.
The Problem With Typical Moving Average Crossover Systems
In a typical moving average crossover system, a trader will wait until each bar closes to determine if the moving averages have crossed (thus generating a buy or sell signal). However, if the trader is using a 30 minute chart, this means they may have to wait 30 minutes before they can determine if there is a signal. The solution to this dilemma is rather than waiting for each bar to close, we calculate ahead of time what price the current bar must close at in order to generate a moving average crossover.
The chart above shows the SMACrossPredictor indicator. This indicator monitors the prices of the two moving averages, and calculates what price the current bar must close at in order for a moving average crossover to occur. By using this indicator, you have an advantage over those using a typical moving average crossover system, because we can tell well ahead of time what price the market must reach in order for the moving average crossover to occur. Therefore, we are able to place our orders sooner, and beat them at their own game!!!
Click the link below to download our Free Moving Average Cross Predictor indicator for NinjaTrader:Moving Average Cross Predictor Indicator for NinjaTrader 7 (2927 downloads)