When two indicators or moving averages cross each other, often used as a trading signal.
Deep Dive
A crossover occurs when two lines on a chart cross each other, typically generating a trading signal. The most common crossovers involve moving averages (when a faster MA crosses above/below a slower MA) and oscillators (like MACD signal line crossovers or Stochastic %K/%D crossovers).
When a faster indicator crosses above a slower one, it's called a bullish crossover or "golden cross" (in the case of the 50/200 MA). When it crosses below, it's a bearish crossover or "death cross." These terms sound dramatic, but in reality, crossovers are lagging indicators that confirm trend changes that have already begun.
Crossover systems are popular because they're completely objective - there's no interpretation required. However, they perform poorly in ranging markets where they generate many false signals (whipsaws). Crossovers work best as part of a larger trading system that filters out range-bound conditions.
Why It Matters
Crossovers provide objective entry and exit signals, especially with moving averages and oscillators.
Related Terms
- Stochastic Oscillator — The Stochastic Oscillator is a momentum indicator that compares a security's closing price to its price range over a given period, helping identify overbought o
- Trend — The general direction in which the price of an asset is moving. Trends can be upward (bullish), downward (bearish), or sideways (ranging).
- Moving Average — A technical indicator that smooths out price data by creating a constantly updated average price over a specific period.
- MACD — Moving Average Convergence Divergence - a trend-following momentum indicator showing the relationship between two moving averages of price.
- EMA (Exponential Moving Average) — A type of moving average that gives more weight to recent prices, making it more responsive to new information.