When trying to make a decision on whether to buy or sell a particular security, the triple moving average crossover (often referred to as the “triple MA crossover due to keyword restrictions) can often provide partial guidance. As one of the most basic technical indicators, this technical indicator can provide a buy or sell recommendation based on the direction of the crossover, allowing traders to open or close positions accordingly.
Moving Average (MA) Defined
Based on the average value of a security, an MA considers past closing prices over a given period of time. Since the MA is be based on historical prices, the lagging data must not be used in isolation. The longer the MA, the more lagging it will be; the shorter the period, the less lag. As a result of this lag, the triple MA crossover works best in clear markets where there is a definite trend, and not so well in sideways or choppy markets.
What is a Triple Moving Average Crossover
A triple MA crossover is a technical indicator as to the direction of a stock price. This type of indicator is triggered when a short MA crosses over a medium moving average, and the medium crosses over the long moving average. Typically, analysts will use the 4-day moving average for the short MA, the 9-day for the medium MA, and the 18-day for the long MA.
Consequently the triple MA crossover will see the 4-day crossover the 9-day and the 9-day crossover the 18-day. Now that all three moving averages have crossed one another, the analyst makes a recommendation on a trade.
Trading the Triple Moving Average Crossover
When the MA cross over one another in an upward fashion, then a bullish signal is generated. This would be an indication to purchase the security (long). Likewise, when the MAs cross in a downward trend, traders are urged to sell the security (short).
As a warning, however, trade decisions should not be based solely on the signal of a triple MA crossover indicator. In order to confirm or refute the signal produced, investors and analysts can easily rely on signals produced by the MACD and Momentum.
Since reviewing multiple technical indicators and signals can become a full-time job for dozens of analysts, many traders can benefit from the assistance of trading software, which can compute thousands of complex signal on a daily basis and return simple buy or sell recommendations.