Moving Average Cross (MAx)

The Moving Average Cross (MAx) study plots three moving averages of different lengths or types. Each average has a different sensitivity to market action. Taken together, the behavior of the averages provides an indication of a change in the market environment, such as the emergence of a new trend.

Calculation

See the Moving Average study for the specific formulas for each type of moving average.

Top Envelope:       MATE = MA * ((100 + PERCENT) / 100)

Bottom Envelope:  MABE = MA * ((100 - PERCENT) / 100)

Characteristics & Usage

The strength of using multiple moving averages is to identify trends of different magnitudes.

The comparison of two moving averages is a common form of technical analysis used to identify the primary trend of a market. When a third average is employed the MAx study may be used to identify the secondary trend as well.

Analysis of the two ‘slower’ averages yields information on the longer term trend.

Analysis of the two ‘faster’ averages yields information on the shorter term trend.

Traders will often use multiple moving averages of different lengths or calculation methodologies and watch for crossover points. The crossover of a more sensitive moving average over a less sensitive average serves as an indication of a change in trend.

The market may be considered strongly bullish when the ‘fast’ moving average is rising and above the ‘slow’ moving average.

The market may be considered strongly bearish when the ‘fast’ moving average is falling and below the ‘slow’ moving average.

The convergence of two moving averages following a trend often serves as an early indication of a weakening trend.

However, MAx tends to be a lagging indicator.

The relationship between two moving averages may be measured using the Oscillator and MACD studies. MAs tend to work best in trending markets and often lead to whipsaw type action in a sideways trading range market. Therefore, it is important to use other filters in order to understand trend. One method is to apply the Rate of Change to the average. A secondary method is to move the averages forward via the offset option. This will highlight periods of congestion and allow for a faster observation of when a trend is changing. Bill Williams Profitunity Alligator study is one that uses this concept. A final method is track momentum by placing an average on a study such as the Parabolic. That study is good at catching the first part of a trend but then is unable to track an extended one. Placing a Moving Average on the Parabolic will ride the trend for longer and maintain more sensitivity than simply using a longer period Moving Average. This concept can be reversed, so a Parabolic is placed on the Moving Average to obtain the same effect.

CQG's conditional coloring attribute is available with the Moving Average Cross study, allowing the color of the study to change when a user-defined condition is true.

Moving Average Cross Parameters