Advanced Charting Techniques for High Probability Trading: The Most Accurate And Predictive Charting Method Ever Created

CHAPTER 4

Moving Average Crossovers

Now that we understand the movement of the three key moving averages, the lead moving average (MA) M1 (white), M2 (green), and M3 (blue), it is time to discuss moving average crossovers in depth and why MA crossovers are extremely important to Advanced Charting. As a stock or index moves up, down, or flat in its cycle, it moves through four phases. We reviewed this briefly on the chart in Figure 3.3 and study this topic in detail in this chapter. All cycles have four phases:

1. Birth

2. Momentum

3. Exhaustion

4. Death

■ M1 (White) Crossing M2 (Green)

As mentioned earlier, these four phases indicate the stock is about to change direction. To determine this, we look at the lead dog—M1 (white). When a stock is rising, we know that eventually M1 (white) will flatten out and go horizontal, turn over, point down, and then cross over M2 (green).

Crossovers of M1 (white) to M2 (green) give us a very good early indication of a possible change in cycle direction. This is a very important relationship to understand. When we are tracking the stock in real time, we should be watching for M1 (white) to turn direction and head toward M2 (green). This is an early indication of a possible change in cycle direction. Watching for this change allows us to pick up a move from a declining cycle to a rising cycle, or vice versa, before there is a break to the top or bottom of the cycle (as identified by a parallel channel).

Look at the chart in Figure 4.1 in mid-February. ...