What does the crossover trading strategy in CFD entail?

Hi Hakiza,

Crossover trading strategy is one excellent technique that you can apply to help you identify trends in a CFD market.

 Typically in this strategy,  the prices will move over to a given level. For example, when there is a certain resistance, the price needs to go by this resistance. This will signify a breakout, and the price may continue rising.

Another type of crossover is when your price has a moving average, and it crosses it. In such a scenario, the moving average, maybe a short term type and will closely follow the price. If the price is rising, it may change the direction and start falling; therefore, the price will cross over the average line. In such a case or the converse of this, you need to go short when the price navigates above the central line or go long when the price is below the average line.

The crossover trading technique will help you trade in the right direction since you can easily know when to buy or sell based on rising and falling prices. You generally buy when there is a lift in the prices and sell they fall.

There are cases where the method will present many signals such that the prices will roughly move. The signs may be false, and one reason for this is because the price may sometimes go unusually.

You can avoid this by using a short term moving average line to make a better prediction that will increase your chances of making a profit.

Another way is by the use of two average moving techniques. You may choose to use the five and the twenty days moving average. You can go long when a five-day moving average surpasses the twenty-day one. Contrarily when the short period moving average falls below the longer one, you can decide to go short on your position.

These two moving average techniques will minimize the fake signals you will use to trade.