50 200 Day Moving Average Crossover Strategy - Simple Trend Trading

50 200 day Moving Average Crossover Strategy – Simple Trend Trading System

The 50 200 day Moving Average Crossover Strategy is one of the most commonly used trading methods applied by both professional as well as part time traders. If you watch any financial news channels, chances are that when the professional traders speak, they often refer to the 50 day and 200 day moving averages, which only goes to show how important these two moving averages are. Trading with the 50 day and 200 day moving average is quite simple, buying and selling on the moving average crossover. This trading system is applied only to the daily charts therefore intraday traders or scalpers will find it inconvenient as it requires a lot of time (weeks or months) to get a good signal.

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The 50 and 200 day moving averages are often used to determine the trends and whether the markets are bullish or bearish. To use the moving averages, some traders prefer to use the exponential moving average or EMA, while some prefer to use the simple moving average or SMA. It is up to the trader on what type of moving average they want to use as there is no big difference in terms of a trading edge between the two types of moving averages.

The 50 and 200 day moving average is an open trading system and traders can apply their own rules. For example some traders prefer to use the 50 and 200 day moving average as a trend following set up, but this means having to hold the trades for long periods of time, while some can use the 50 – 200 day moving average and simply trade the markets for a few pips.

The trading system can also be used by combining other oscillators or indicators. When using the 50 200 day Moving Average Crossover Strategy, there are two commonly used terms:

Death Cross: Death cross is commonly used term which refers to when the 50 day moving average cuts the 200 day moving average from above. It signals that the trend is shifting.

Golden Cross: Golden cross is the opposite of death cross and refers to when the 50 day moving average cuts the 200 day moving average from below. It signals that the trend is shifting.

50 200 day Moving Average Crossover Strategy - The Simplicity of the Death Cross and Golden Cross

50 200 day Moving Average Crossover Strategy – The Simplicity of the Death Cross and Golden Cross

50 200 day Moving Average Crossover Strategy – Trading Rules

Long Entry Rules:

  • An uptrend is formed when the 50 day moving average has crossed above the 200 day moving average, or when the 50 day MA is above the 200 day MA
  • You can buy the dips in this bullish set up every time price bounces off the 200 day moving average

Short Entry Rules:

  • A downtrend is formed when the 50 day moving average has crossed below the 200 day moving average, or when the 50 day MA is below the 200 day MA
  • You can sell the rallies in this bearish set up every time price bounces off the 200 day moving average

50 200 day Moving Average Crossover Strategy – Long and Short Trading Examples

Short Setup Example (With an oscillator)

50 200 day Moving Average Crossover Strategy - Short Trading Example

50 200 day Moving Average Crossover Strategy – Short Trading Example

The above sell set up chart illustrates how the Stochastics Oscillator overbought levels are used in a downtrend to sell the rallies. Notice every time price moves between the 50 and 200 day moving average and the Stochastics is overbought, short positions offer good trading opportunities.

It is up to the trader on how they exit the trades, but as a general thumb rule, focusing on a 1:2 risk reward can be a good start.

Long Setup Example (With chart patterns)

50 200 day Moving Average Crossover Strategy - Long Trading Examples

50 200 day Moving Average Crossover Strategy – Long Trading Examples

In the above buy set up example, we can see how chart patterns or price action can also be combined into the 50/200 day moving average set up. The example shows a bullish flag pattern within the uptrend confirmed by 50 EMA trading above 200 EMA and later on you can see the inverse head and shoulders pattern which is bullish and comes within the uptrend.

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50 200 Day Moving Average Crossover Strategy

The 50 and 200 day moving average system is more popular among stock traders as it helps with a ‘Buy and Hold’ strategy. The system can be applied to the currency or commodity markets as well and works just as easily. The 50 and 200 day moving average system is widely used by traders and therefore trends are clearly defined. Being an open system, traders can experiment by adding their own preferred indicators or price action and trade based off the 50 and 200 day moving average.

 


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