A moving average is an indicator that shows the average value of a security's price over a period of time. This type of event occurs when a shorter moving average crosses a medium moving average, and the medium moving average crosses a longer moving average. The moving average periods used for this event are 4, 9 and 18 day. When the 4-day crosses above/below the 9-day moving average, the event has "started". The event is "confirmed" when the 9-day moving average crosses above/below the 18-day moving average.
A bullish signal is generated when the direction of the crossovers is above e.g. the shorter crosses above the medium and the medium crosses above the longer. A bearish signal is generated when the direction of the crossovers is below.
These events are based on simple moving averages. A simple moving average is one where equal weight is given to each price over the calculation period. For example, a 9-day simple moving average is calculated by taking the sum of the last 9 days of a stock's close price and then dividing by 9. Other types of moving averages, which are not supported here, are weighted averages and exponentially smoothed averages.
Moving averages are lagging indicators because they use historical information. Using them as indicators will not get you in at the bottom and out at the top but will get you in and out somewhere in between.
They work best in trending price patterns, where an uptrend or downtrend is firmly in place.
Criteria that Support
Indicators that are well suited to working with moving averages include the MACD and Momentum.
Criteria that Refute
Moving averages do well in trending markets but they generate many false signals in choppy, sideways markets.
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