Crossover

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.

Crossover

BREAKING DOWN 'Crossover'

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.

RELATED TERMS
  1. Crossover Investor

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

    A crossover resulting from a security's long-term moving average ...
  3. Crossover Fund

    An investment fund that has investment holdings in both public ...
  4. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  5. Optimization

    In the context of technical analysis, it is the process of adjusting ...
  6. Lagging Indicator

    1. A measurable economic factor that changes after the economy ...
Related Articles
  1. Active Trading

    Moving Averages: Strategies

    By Casey Murphy, Senior Analyst ChartAdvisor.com Different investors use moving averages for different reasons. Some use them as their primary analytical tool, while others simply use them as ...
  2. Chart Advisor

    Stocks With Bullish MACD Crossovers

    One of the most popular trading indicators is the MACD, and right now it's flashing a bullish signal in these four stocks.
  3. Chart Advisor

    Watch for Bullish MACD Crossovers in These Stocks

    These stocks are trending higher but recently experienced a pullback. Watch for a bullish MACD crossover to indicate upward momentum is continuing.
  4. Chart Advisor

    4 Double-Cross Buy Signs

    Will the double crossover on MACD and Stochastic indicators trigger a move higher?
  5. Stock Analysis

    Two Indicators Are Better Than One

    The MACD and Stochastic are an ideal pairing. The bullish crossovers that have occurred on these charts should catch the eye of short-term traders.
  6. Chart Advisor

    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.
  7. Stock Analysis

    3 Simple Moving Average ETF Trading Strategies

    The active trading community has embraced ETFs as these financial instrument offerunparalleledintradayliquidity, transparency, and cost-efficiency. Rapid growth in the exchange-traded universe ...
  8. Charts & Patterns

    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. Chart Advisor

    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.
  10. Trading Strategies

    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.
RELATED FAQS
  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. 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 >>
  5. What is a common strategy traders implement when using a Moving Average Ribbon?

    Learn about how traders might use an exponential moving average ribbon strategy and what kinds of buy and sell signals are ... Read Answer >>
  6. What are the best technical indicators to complement the Ultimate Oscillator?

    Learn about the technical indicators traders use to complement trading with the Ultimate Oscillator indicator, including ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center