3 Simple Moving Average ETF Trading Strategies

by on September 17, 2012 | Updated July 9, 2014

The active trading community has embraced ETFs as these financial instrument offer unparalleled intraday liquidity, transparency, and cost-efficiency. Rapid growth in the exchange-traded universe has spawned hundreds of viable instruments that make it easy for traders to tap into virtually any corner of the global market through a single ticker. Those looking to take advantage of short-term trading opportunities can implement technical analysis on any one of nearly 1,600 ETPs to choose from [see also How To Pick The Right ETF Every Time].

With more and more active investors taking advantage of the exchange-traded product structure, technical analysis remains the driving force behind most trading strategies. As such, below we have outlined three ETF trading strategies built around simple moving averages that may appeal to those looking to use technical analysis in their investment approach [see also ETF Technical Trading FAQ].

  1. Golden Cross

The “golden cross” is regarded by many as perhaps the most popular simple moving average (SMA) trading strategy thanks to its simplicity. This strategy is built around the idea of a “crossover”; this is the instance when a shorter-period moving average crosses either above or below a longer-period moving average. By monitoring two different moving averages, traders can get a better understanding of how recent price action relates to the longer-term trend at hand. The shorter-term SMA helps trading identify near-term momentum, while the longer-term SMA serves as a reference point for what prevailing momentum has historically been. Consider the chart below [see also 5 Chart Patterns Every ETF Traders Should Know]. 

Click To Enlarge

The golden cross most commonly references the 50-day (blue line) and 200-day (yellow line) simple moving averages. When the 50-day crosses above the 200-day SMA, this is referred to as a “bullish crossover”; this can foreshadow a positive trend reversal since positive momentum is prevailing as the near-term price increases outpace the longer-term term average price. In the example above, traders are alerted with a buy signal at the golden cross, which allows them to participate in the uptrend that often follows. 

  1. 10-30 Crossover

Traders who wish to take advantage of more opportunities in the market can tweak the “golden cross” strategy outlined above by simply using shorter time period moving averages. Using the 10-day (blue line) and 30-day (green line) SMA is a popular strategy among swing traders who look to take advantage of dips during bull markets and rallies during bear markets. In the “bullish crossover” example below, the 10-day crossing above the 30-day SMA gives traders confirmation that the ongoing uptrend will likely continue as near-term momentum resumes [see also 17 ETFs For Day Traders]. 

Click To Enlarge

Traders should also be on the look out for a “bearish crossover”; as you may have already guessed it, this is the instance when the shorter-term SMA crosses below the longer-term SMA, suggesting that near-term price decreases are dragging the price below the longer-term average price. Consider the chart below [see also 3 ETF Trading Tips You Are Missing]. 

Click To Enlarge

The 10-day crossing below the 30-day SMA gives traders confirmation that recent weakness may persist as a downtrend develops. 

  1. 5-10-20 Crossover

Abiding by the same principles as the strategies highlighted above, the 5-10-20 crossover looks to minimize the number of “false signals” by adding another moving average into the mix. When the five-day, 10-day, and 20-day SMA are all moving in the same direction, the trend is deemed to be strong; trend reversals are confirmed when the moving averages crossover and head in the opposite direction [see also 25 Things Every Financial Advisor Should Know About ETFs].

Click To Enlarge

In the example above, notice how the uptrend is strongest when the five-day (yellow line) is above the 10-day (blue line), which is above the 30-day (green line) SMA. Likewise, traders can have confirmation that the uptrend is reversing when the five-day crosses below the 10-day, and eventually both cross below the 30-day SMA. By looking at more moving averages, traders can have more conviction regarding reversals and trend strength; however, this also results in a delayed signal since traders must wait for all indicators to be pointing in the same direction. 

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Today's Top Story Flag
Annual GDP Growth: A Good Predictor of Single-Country ETF Returns?

In some instances, strong GDP growth has fueled bull markets, while in other cases, these two seemingly-correlated investment factors have not behaved as many would expect.

Most Popular ETF One Click Screens

Browse by ETFdb Category

Each ETF has been classified into one best-fit ETFdb Category by the ETFdb staff.

Use Our ETF Screener

Screen ETFs based on asset class, issuer, market cap, expense ratio, and more.

Browse Our Database

Browse by Ticker Name

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Latest Stories from Commodity HQ

Sep 10 –  Gold’s Struggles Continue
Aug 27 –  Commodity Stock in Focus: Alliance Resource Partners (ARLP)
Aug 20 –  2 Commodity Stocks to Sell on the Next Pop: MT, RIG
Aug 13 –  Commodities in Focus Amid Russia Sanction Battle
Aug 6 –  2 Energy Stocks to Buy on the Dip: NOV, ETE
Read more stories at commodity hq →
Subscribe to the free commodities newsletter →

ETF Database Quicklinks

View some of the most popular pages on ETFdb, including many of our free ETF tools and proprietary database:

Quick Search

Ticker or Keyword:

Financial Advisor & RIA Center

Alternatives ETF Center

Fixed Income ETF Center

Latest Feature Stories

Sep 14 – High-Yield Prospects: September 14th Edition
Sep 13 – Best & Worst Weekly Performers: September 13th Edition
Sep 12 – ETF Scorecard – September 12th Edition
Sep 11 – State Street Launches First Active Fund (RORO); First Trust and PowerShares Launch 2 Funds (FTLS, LDRI)
Sep 8 – Three Reasons Financial Stocks Offer Good Value
Sep 8 – Sell On The Pop Prospects: September 8th Edition
Sep 8 – Buy On The Dip Prospects: September 8th Edition
Sep 7 – High-Yield Prospects: September 7th Edition
Sep 6 – Best & Worst Weekly Performers: September 6th Edition
Sep 5 – ETF Scorecard – September 5th Edition
Sep 4 – ETF Pick of the Month: Sell this “Defensive” Sector
Sep 4 – ETF Pick of the Month: Bottom Fishing in Metals
See more feature stories →

Best of ETF Database