What is 'Crossover'

A crossover is the point on a stock chart when a security and an indicator intersect. Technical analysts use crossovers to aid in forecasting the future movements in the price of a stock.

In most technical analysis models, a crossover is a signal to either buy or sell. On the chart below, the stock falls below its 20-day moving average – a bearish sign.



An example of a crossover would be when the security line breaks through its 25-day moving average, which may be a signal to buy the stock. Some of the indicators that use crossovers are moving averages and Bollinger Bands.

Technical analysis utilizes crossovers to indicate general buy or sell signals on the underlying financial instruments. Traders use crossovers with various technical indicators to track turning points in price trends, momentum, volatility, money flow and sentiment. Moving average crossovers trigger breakouts and breakdowns.

Moving Average Crossovers

When utilizing moving averages, crossovers can determine a change in the price trend. A common trend reversal technique is utilizing a five-period simple moving average with a 15-period simple moving average. When the five-period moving average forms a crossover through the 15-period moving average, it signals a reversal in the trend and potentially the start of a new opposite trend, which is called a breakout or a breakdown.

A five-period moving average crossing up through the 15-period moving average indicates a price breakout that should form an uptrend, composed of higher highs and higher lows. A five-period moving average crossover down through the 15-period moving averages signals a price breakdown that should start a new downtrend, composed of lower highs and lower lows.

The rule of thumb is that longer time frame periods result in stronger lasting signals. A daily chart time period is stronger than a one-minute chart time period. The trade-off is that the shorter time period crossovers give earlier signals, but have many more false signals. When the daily 50-period moving average makes a crossover through the daily 200-period moving average, this is often known as the death cross, which signals a major price trend reversal.

Stochastic Crossovers

The stochastic indicator measures the momentum of an underlying financial instrument. It gauges the immediate overbought or oversold condition of the instrument, similar to a car tachometer.

The stochastic indicator is composed of two oscillators; the %D stochastic is the lead while the %d-slow is the laggard on a chart labelled from 0 to 100 bands.

When the stochastic moves above the 80 band, the stock (or whatever financial instrument) is considered to be overbought. When the stochastic falls below the 20 band, the underlying is considered oversold. A sell signal forms when the %D stochastic forms a crossover down through the %D-slow under the 80 band. A buy signal triggers when the %D forms a crossover through the %D-slow back up through the 20 band.

  1. Crossover Investor

    An investor who invests prior to, during and after a company's ...
  2. Golden Cross

    A crossover involving a security's short-term moving average ...
  3. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  4. Crossover Fund

    An investment fund that has investment holdings in both public ...
  5. Signal Line

    A moving average plotted alongside a technical indicator and ...
  6. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
Related Articles
  1. Investing

    5 Stocks With Bullish MACD Crossovers for 2016 (COT, OCLR)

    Take a technical analysis look at five stocks that may be heading to the upside in 2016, based on a bullish MACD crossover buy signal.
  2. Trading

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  3. Trading

    MACD And Stochastic: A Double-Cross Strategy

    Two indicators are usually better than one. Find out how this pairing can enhance your trading.
  4. Trading

    3 Nasdaq-100 Stocks at or Near Monthly Buy Signals

    Monthly Stochastics crossovers identify significant turning points where shareholder supply and demand can shift forcefully.
  5. Trading

    MACD Bearish Crossover in Downtrending Stocks (NWSA, URBN)

    The MACD is a popular moving average based indicator, and it is signaling the downtrend will continue in these stocks.
  6. Trading

    3 Nasdaq-100 Stocks With Bullish Crossovers

    50/200 moving average crossovers can detect trend changes before price action sets off broad based buy or sell signals.
  7. Investing

    3 Stocks that Tend to Perform Well to MA Crossovers

    It isn't a significant event every time the 50-day moving average crosses the 200-day, but for these stocks it does confirm a trend change.
  8. Trading

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  9. Investing

    Double Exponential Moving Averages Explained

    This tweak on moving averages gives traders faster access to the information they need.
  10. Trading

    Know the Forces At Play Behind the Buy/Sell Cycles

    Weekly Stochastics uncovers patterns of buying and selling pressure that can be predicted and capitalized upon by observant investors and traders.
  1. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
  2. What is the difference between a Golden Cross and a Death Cross Pattern?

    Learn the difference between the golden cross and the death cross, both of which are considered important technical indicators ... Read Answer >>
  3. How are Golden Cross patterns interpreted by analysts and traders?

    Learn why the golden cross is considered a major technical indicator of a bull market in an individual stock, market index, ... Read Answer >>
  4. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
  5. How do I use Stochastic Oscillator to create a forex trading strategy?

    Learn about the stochastic oscillator and how to it is used to create an effective forex trade strategy, including how to ... Read Answer >>
  6. How do I create a trading strategy with Bollinger Bands® and moving averages?

    Learn more about how to identify buy and sell trading signals when implementing a moving average crossover strategy with ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center