A moving average ribbon is created by plotting many incremental moving average lines on top of the same price chart. The visual relationship of the moving averages can help reveal crossover points, which traders can use as trade signals. As with other crossover indicators, the shorter-term moving average lines will tend to move more than the longer-term ones, and the degree of momentum that the crossovers imply increases for moving average lines of lengthier look-back periods.
Traders must make decisions about how many crossovers are indicative of the conditions that he or she is looking for. In indicators like the Moving Average Convergence Divergence (MACD), crossovers of moving average lines are extremely relevant and are accompanied by histograms that show the distance between the moving average lines.
Moving Average Convergence Divergence (MACD) is a frequently used momentum indicator composed of several moving average lines. A MACD line is plotted by using the exponential moving average (EMA) over 12-day periods and subtracting the EMA of 26-day periods.
A “signal line” – the 9-day EMA – is then plotted on top of the MACD line. A histogram is also usually included to indicate the divergence between the signal line and the MACD. When the MACD and the signal line cross paths, these points of convergence are widely used as trading indicators that trends are starting or ending.
Traders must make decisions about how many crossovers are indicative of the conditions that he or she is looking for. In indicators such as the MACD, crossovers of moving average lines are extremely relevant and are accompanied by histograms that show the distance between the moving average lines.
One such pattern is called the Death Cross. The Death Cross indicates when a security’s short-term moving average crosses underneath its long-term counterpart, typically followed by an increase in trading volume. Investors use a death cross, the inverse of a golden cross, as a tool to identify incoming bear markets, most commonly using long-term 50-day and 200-day moving averages to detect the pattern.
Analysts spend enormous amounts of energy and attention to calculate and analyze moving averages in relation to one another. With Tickeron, algorithms can do much of this work for you. Our artificial intelligence tools are capable of conducting analysis to more quickly and efficiently generate trade ideas, analyze signals to execute advantageous trades, or in other ways that support rational, effective trading decisions.