For Business

Indicators

What Is a Moving Average Crossover

The crossover is the first signal almost everyone learns and the first one almost everyone abandons. Measured against random entries on the same bars it does have an edge — a small one. This paper shows you the number, shows you why it is small, and then more than doubles it with a single filter you can apply by hand.

Difficulty
Intermediate
Reading time
8 min
Pages
9

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The skill

A crossover is the moment a short moving average passes through a long one. What this paper teaches is not the crossover — it is how to find out what any signal you have been handed is actually worth.

Step one — write the signal down

A signal you cannot write down cannot be tested. Here it is exactly: on a four-hour chart, when the twenty-bar average closes above the fifty-bar average, buy that bar's close, stop two average bars away, target four, exit at whichever comes first or after sixty bars.

That is the rule firing and working, and it is evidence of nothing. Every signal ever invented has a chart on which it worked; picking one is how signals get sold rather than how they get tested.

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