The Ultimate Moving Average Strategy – The 10/20 Crossover System

Do you want to know more about Moving Average and moving average crossover? With our ultimate moving average strategy you will learn what moving averages are, how to trade with moving average and much more.

The Moving Average Strategy “The 10/20 Crossover System” Explained

One of the more common and probably oldest trading systems out there is the “10/20 Crossover System.” This system relies on 2 moving averages, one focusing on 10 candles, while another is focusing on 20. A moving average is simply an average price of a set number of candles. In other words, a 10 simple moving average would be the average price of a financial instrument over the last 10 candles. In this system, the premise is that the faster moving, or 10 candle moving average shows short-term momentum, while the 20 candle moving average shows a bit more longer-term momentum. The idea is that when the shorter moving average crosses over the longer moving average, it shows that the near-term momentum is changing course.

In this example, I have the Australian dollar against the US dollar, daily timeframe. The 10 moving average is in red, while the 20 moving average is in blue. As you can see, the red moving average has crossed both above and below the blue moving average. This shows that momentum is shifting. These are signals that traders tend to pay attention to.

When the shorter period moving average crosses above the longer timeframe moving average, it shows that buying pressure is increasing. When it moves below the longer-term period moving average, it shows that selling pressure is increasing. The idea is to follow the market in both directions. However, it helps if you have some type of trend established. Because of this, you can get several false signals, but longer-term runs in the market are possible, leading to larger profits. You must be able to deal with several short-term losses followed by a couple of longer-term gains.

You are constantly in the market, either buying or selling. As you can see on this chart, there are several signals that would have fired off with small losses. However, there are a couple that produced large gains. Over the longer term, the system does tend to work, but it takes a certain amount of patience to make money trading like this.

The post The Ultimate Moving Average Strategy – The 10/20 Crossover System appeared first on The Diary of a Trader.