Moving Average Crossover Strategy

Strategy Logic

The moving average crossover strategy generates buy and sell signals by calculating the crossover between two moving averages of different periods. A long signal is generated when the shorter period MA crosses above the longer period MA, while a short signal is generated on the downward crossover.

For example, going long when the 5-day MA crosses above the 21-day MA, and closing the long when the 5-day MA crosses back below the 21-day MA.

The trading logic is:

1. Calculate two MAs, one short-term e.g. 5-day and one long-term e.g. 21-day
2. Go long when the 5-day MA crosses above the 21-day MA
3. Close the long when the 5-day MA crosses back below the 21-day MA
4. Similarly calculate a 14-day and 28-day MA
5. Go short when the 14-day MA crosses below the 28-day MA
6. Close the short when the 14-day MA crosses back above the 28-day MA

Different MA period combinations can suit short or long term trends.

Advantages

• Simple and easy to implement
• MAs provide some trend filtering
  
• Parameters can be optimized by adjusting periods

Risks

• MAs lag price, time delay
• Longs and shorts can open simultaneously
  
• Prone to whipsaws in choppy markets

Summary

The MA crossover strategy uses MA crosses to generate signals, with adjustable periods to fit market cycles. A simple trend following approach, but lagging MAs and whipsaw risk need caution. Consider combining with other indicators for filtration and optimization.