All language subtitles for 3. Excellent Crossover Rule For Decision Making

The crossover rule is a very well established rule for decision making, whether you want to buy or

sell a particular security, and it involves moving averages and when they cross over things, so moving

averages, you know, lend themselves to really easy to understand and apply this trading rule called

the crossover rule.

So as prices move up and down, so does the moving average move up and down as well.

And it takes a little bit behind it.

But when they start crossing over, that means something's happening and we want to make decisions around

what might be happening around that.

So let's talk about the crossover rule and how we can use these moving averages to help us make better

decisions as far as traders.

And the Crosswell rule is actually very simple to understand.

So basically, when you buy when a price crosses above the moving average, so we have our moving average

line price crosses above it, that shows that that's a buying opportunity.

Same thing with selling where the price is going below the moving average.

That's a sell a selling opportunity as far as that.

So let's look at that on an actual chart and let's see.

Well, what does that really mean?

But really kind of remember when you're buying and when you're selling.

So if we look at the chart here, we can see where the moving average, the blue line happens to be

a 50 day moving average to when I happen to like you could select different time frames, of course,

and you can see where it crosses over the the price line, the line, the line price bar chart.

Basically, you can see where it crosses over.

And really what you're looking at is you're looking for how this interacting with the moving average.

So when it crosses above the moving average line, that shows that the trend that things might be changing,

a trend might be continuing and the prices are going to continue to rise.

By the same token, when the price goes below the moving average line, then it's it's showing that

it's going to maybe continue on that downtrend as far as getting know, prices either staying or going

lower.

And as you can see and here in this example, so basically a simple rule would be and they don't stay

there necessarily for long periods of time.

Sometimes they do.

Sometimes they don't.

I mean, if you look at the lines to the left of the on the far left of the chart, you can see they're

well above the blue line for quite some time before they crossed below.

And then you would sell and then above and buy and and back and forth in kind of an up and down thing

in the middle there.

And then to the far right, you'd see where you'd buy back in again.

So really, if you apply, the simple rule is if a cross is above the moving average line, I buy enough

across the board.

Moving average line I sell is the idea behind it.

Now, at this point, you might be thinking, yay, eureka, so simple.

This is all I need to do.

This is perfect.

I just kind of look at a line and what whether it's going above and below the line.

OK, I'm glad you're happy.

That's really good.

Nothing's perfect, unfortunately, as far as within the technical analysis world.

So don't rely on just one indicator, but it's a good, strong indicator.

So you can be happy.

Just don't be too overjoyed to sign it.

So the crossover rule is really terrific.

It's really going to stand as it's a really good, remarkably good predictor, a predictable indicator,

but it's not perfect.

There are outliers and you have data points that pull things far off a trend lines and the more outliers

you have know far ranges and prices, you know, the less accurate you're moving average might be because

those outliers are impacting that moving average.

So you can give a false signal at times and give you a false signal of a breakout.

But you can usually correct that quickly because you're moving average is going to come back down a

little bit, too.

You probably saw in that last chart where it looked like in the middle of there, where there's a lot

of up and down going above and below the moving average line.

There was a lot of by Salbi cell by cell.

And that's a that's a that's a challenge.

And that's what's called a whipsaw, actually.

And you can get with a moving average.

And one of the downsides is get a lot of buy and sell signals with a frequent crossing period.

You know, we're traders are trying to make up their mind to make you find a cell as a massive group.

And you can get these frequent buy and sell things for.

You're doing more, you know, trading activity which could potentially incur more costs as you keep

buying and selling.

And it can occur any time.

But the most common time where you see a whipsaw is in what we call a sideways market.

There's no definite uptrend, no definite downtrend.

It's kind of trending in this kind of narrow band.

It's going above and below the line up frequently.

And that's causing this whipsawing effect of buying and selling so it could lead to this frequent trading

around that.

So we in the next I want to talk about whipsaws a little bit more on how to kind of overcome that a

little bit.

Understand that can be a part of the crossover rule, but still a very, very an excellent, very good

rule as far as understanding when to buy and sell.