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SMA Crossover
Buy when a fast moving average crosses above a slow one
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What Is This Strategy?
The SMA (Simple Moving Average) Crossover is one of the oldest and most widely used trading strategies. It works by comparing two moving averages of different lengths to identify trend changes.
How It Works
- Calculate a short-term moving average (e.g., 10-day SMA)
- Calculate a long-term moving average (e.g., 50-day SMA)
- When the short SMA crosses ABOVE the long SMA = Buy Signal (Golden Cross)
- When the short SMA crosses BELOW the long SMA = Sell Signal (Death Cross)
SMA Crossover - Decision Flow
Visual representation of the strategy logic
Condition Check
Buy Signal
Sell Signal
Action
Key Parameters
Fast Period
The shorter moving average period
Slow Period
The longer moving average period
When to Use
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Best For
- • Trending markets
- • Medium to long-term trading
- • Stocks with clear trends
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Avoid When
- • Choppy, sideways markets
- • Very short timeframes
- • High-frequency trading
Risks & Limitations
warning
Be Aware
- • Lags behind price - signals come late
- • Whipsaws in sideways markets cause false signals
- • Works poorly in range-bound conditions
Example Trade
Scenario
AAPL has been in a downtrend. The 10-day SMA crosses above the 50-day SMA.
BUY
Reasoning
The crossover suggests the short-term momentum has shifted bullish and a new uptrend may be starting.
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