Simple moving average crossover
by Peter Aan
Editor's note:In this issue, Peter Aan reports on the first of his tests of different trading systems. He
begins with probably the most widely known trading system.
Trend following, always in the market.
Rules and Formulas: The moving average crossover method calculates two moving averages, each
based on a different number of days of trading data (Figure 1).
When the shorter-term (fewer days) average crosses above the longer-term average from below, this is
a buy signal for tomorrow's open. When the shorter-term average crosses below the longer-term average
from above, this is a sell signal for tomorrow's open.
To compute a simple moving average (MA) of the closes, take the sum of the closes for the most recent
"n" number of days and divide by "n." For example, a 3-day MA is calculated in the following manner: