Crossovers

Put two averages of different lengths on the same chart and they will cross from time to time. The shorter average crossing above the longer one is traditionally read as upward momentum strengthening; crossing below, the reverse. Two of these crossings have famous names: the 50-day crossing above the 200-day is called a golden cross, and crossing below it a death cross.

The appeal of a crossover is its clarity: the lines have either crossed or they have not, with no room for interpretation. The price of that clarity is delay. Because averages are computed from past closes, the cross happens not at the start of a move but well after it is underway — by the time you see it, the trend has already been running.

Its most expensive weakness shows in sideways markets: as price oscillates in the band, the averages tangle around each other and produce one meaningless cross after another — this is called a whipsaw. A crossover summarises trending periods; deciding what state the market is in still falls to you, and to the swing reading you learned in level 2.