Moving Average Crossovers: Worthwhile or Worthless?

I am always seeing conflicting viewpoints when it comes to MA crossovers. On the one hand, people say they are great for beginning traders as they are simple to understand, effective, and there is not much you can screw up. On the other hand, people say by the time a crossover happens, most of the move has transpired and your risk for a losing trade is higher because of this.

I was reading an article in Forbes about a professional trader (stocks) who uses moving average crossovers, and I found that surprising given that most traders claim them to be for newbies only who usually end up graduating to more refined approaches.

My other thought is in regards to time frames. Take, for instance, a 5/10 EMA crossover. Assume entry on one cross, exit on opposite cross... Are you more likely to achieve success on a Daily TF than you are a 15M TF?

So what say you FF?

Worthless to me. They don't show anything I can't already see from price alone, let alone help me make a prediction. Any purely mechanical system has zero expectancy in the long-run, regardless of time frame. You'll likely last longer if you use higher TFs due to less trading and larger sl/tp, but in the end they all meet the same fate.

Very effective to me,

On this example, GBP/AUD on the 120 mins TF, the buy signal was given on JAN 21st 2015 and is still active for a gain of 1.300 pips on this pair alone, specially if you don't have time to be in front of your computer all the time, once you identify the trend and surf with it until the moving average crosses or when your trainling stop gets taken out.

This works for me, you won't have a trend all the time, so when you spot one, don't missed it.

Fx 35

Crossover of 2 MAs - worthless. MAs are lagging indicators. By the time the crossover has occured, the move is over.
Price Action is better than MAs, Stochastics, RSIs, etc.

Two things to remember about Moving Averages....

1. They act Filters to remove "noise" from a chart in a similar manner to say Heiken Ashi candles.

2. A Moving Average on a lower Time Frame acts as a Leading Indicator to a Higher TF Chart

Thus an MA cross on the 1m TF alerts us - in advance - to a potential cross on the 5m TF

The first pair of charts are bar charts with a fast MA - an 8 EMA and a slow MA - the 34 EMA on both charts.

On the second pair of charts, price is shown as a 1 EMA.......viz a line chart

Nothing works in ALL types of price action, but researched use of MA crosses - with attention when NOT to trade can IMO form the basis of a profitable trading system as was, for example, shown by Philip Nell in his excellent thread started way back in 2007.

There is no tool or indicator that is worthless in trading. Its either you understand how it works or you have what you use currently that's working for you and you could choose not to care about other tools out there which could be as effective too. Of course MA crossover looks like a beginner's strategy. I used it too and am still using it. The pure difference is that I see more to it than just crossovers. Using moving averages are part of my arsenal of tools which I use in my market analysis and strategy. From observing MAs and price actions, i could determine if a trend is up or down, if its ending or forming, its strength or weakness, identifying support and resistance, if the bull/bears getting tired or gain momentum, and so on before a crossover occurs. MA crossovers are massively followed in Forex trading. Just take a close look at how price and market reacts after a slow MA crosses a fast MA. The rest is left to be imagined. Personally I have found MA crossovers to be most profitable on medium or higher time-frames. Using MAs on a 1 min chart is committing account suicide. If you want to use MA crossover purely as a signal generator then you need to move up to the daily charts where there is no noise and follow the trend. You will never go wrong with following the trend. I have studied successful trades who use MA crossover methods too, although they use it in conjunction with other indicators like stoch, and macd. You and I know that stoch and macd are both MA calculated indicators.

You must see both (moving averages and price) for what they are: Price is the result of all orders placed in the market at any given point in time...if prices are rising that means there are more buyers than sellers...the opposite is true for falling prices. The charts you look at are merely a graphical representation of price action NOW and in the past. Thus no matter which "time frame" you look at you are still looking at the same "now moment". The only difference in the time frames is historical context...

Another way to gain that historical context is through the use of an average, but again you must see it for what it is...it is a mathematical formula applied to a certain price point (close, weighted close...etc) over a period of time. This math formula has no influence on current price and cannot predict any future price. It only provides a historical context...ie if the moving average is rising, then past prices were also rising, during the time measured by the average.

Both of these situations...past price, or past price average are PAST. They are what has already happened. Many try to gain or confirm a belief about future events using these. In other words, if the averages cross and are moving higher...then price will move higher in the future...This is a ridiculous conclusion and makes no sense. Its like saying that the water at high tide will continue to get higher because it has continuously risen over the past 12 hrs.

Accept that the market is made up of PEOPLE, and that people tend to do things in herds, and that herds often do things that make no sense. Correlation is NOT causation. Just because a moving average is rising means nothing...learn to see how people are trading and reacting to prices. Learn to see the inherent "flow of orders" that causes price action...it takes more time and it is more difficult but you will be better off...

For my part I see no value in any of the widely accepted "technical analysis" techniques...believe me, I have tried them all. I have finally come to learn to "see" the order flow present in the "now moment" and stay with that while in front of the computer. Forget about the past...you can't see the future...you must trade NOW...and hold until NOW stops being profitable, or has reached a point at which you are satisfied with profit or loss.

I strongly disagree with gspajon

first all common indicators like MA, RSI and so on ... where initially developped for daily timeframes
it occur that the usual values where later used also in lower timeframes

if you do crossovers then of course it will lag because its precisely for its smoothing properties that the crossover was designed for.
crossovers can be helpfull in matured trend where you succeeded to enter early and you wish to ride the beast to unknown territory
in this case you need a smoothing indicator like this to avoid down spikes.

but you must adapt to the nature of the trend that occur in real time
as each bars put a new piece of information
you must change the perception filter if you see an increase of volatility for example
in this case using a crossover to terminate a trade can be costly and you'd better use a simple stop level

personnaly I believe common indicators have values because they are used by institutionnals

but instead of crossovers, i take them as dynamic support/resistance
even the 70/30 levels of the RSI inverted to the bar chart are dynamic SR

I think this maybe the wrong question

The issue with all tools of any kind whether its a hammer or a knife or a SMA or a truck or a gun for that matter
Tools are not good or bad - the questions to ask are
1. is this the right tool for the job - ie, I would not want a doctor using a gun to treat me that often (LOL) a policeman sure
2. do I know how to use the tool - again I am not sure I am that great with guns- may not be the best tool for me to use;
- where my dad was a farmer and a gun was 2nd nature to him

ie. are MA crossover lags good or bad well it depends mostly on how you use them
so
1. They maybe bad as an entry tool.
2. They maybe great to judge trend or trend strength or resistance/support area

I think the main points of tools are - people use too many tools and they use them wrongly

cheers

TEB

AGREE 100%

Meaningless question, as no indicator works in isolation, so a single MA crossover on a single time frame, without anything else considered is about as much use as a one legged man at an ass kicking party. Used however as part of a synchronised strategy that has been tried and tested incorporating different times frames and other supporting indicators, and the positioning of moving averages are a very powerful trading tool to use.

Exactly...as I said...CONTEXT