On a day when everything is ripping higher, how do you know when to buy? The crossover technique can help you time your buy, as well as your sell. This system works great on all time frames, but I will focus on the 5 minute daily chart for day traders.
Every morning I set up my charts on the 5 minute candlestick setting. I then plot the 5 day moving average as well as the 10 day moving average. On a day like today when everything is ripping higher, I want to see a pullback before I make my entry. I never try to pick a bottom, and I never try to pick a top-- I wait for a signal.
One signal I look for is a golden cross, this happens when the short-term moving average breaks above its long-term moving average (crossover). Lets take a look at Deere's daily chart:
Our entry point is at the first golden cross around $164.00. We then ride the trade until the the longer term moving average crosses the short term moving average called the death cross, around $166.50. Sweet, a quick $2.50/share. Now take a look at the 2nd crossover using this similar method. Amazing, another quick $3/share.
On the next chart we will look at BIDZ. The same is true if you're looking to short a stock, you look for the death cross. If you look at the chart below, the 3rd crossover signals a death cross. This is a perfect opportunity to get short. As you can see, you could have made a quick buck a share using this signal.
There are many other things I look for before I enter and exit a trade. I just wanted to make you aware of a simple signal that can help you time your buy.