How the SMA Crossover Strategy Works
A breakdown of the Moving Average Crossover strategy — how it detects momentum shifts, why we use the 200 EMA as a trend filter, and what to expect from MULTUP and MULTDOWN contracts.
The SMA Crossover strategy is one of the most well-known trend-following systems in forex trading. It uses two Simple Moving Averages — a fast one and a slow one — to detect when momentum is shifting, then enters a multiplier contract in the direction of that shift.
How the Signal Works
The strategy watches the 20-period SMA and the 50-period SMA. When the fast (20) crosses above the slow (50) it signals bullish momentum. When it crosses below, it signals bearish momentum.
The 200 EMA Filter
Not every crossover is worth trading. The 200 EMA acts as a directional gate — we only take MULTUP (long) trades when price is above it, and only MULTDOWN (short) trades when price is below it. This keeps us aligned with the dominant trend and filters out a large number of losing counter-trend signals.
Stop Loss and Take Profit
Each trade uses a fixed stop loss of $0.50 and a take profit of $1.00 per unit stake. The 2:1 reward-to-risk ratio means the strategy only needs to win roughly 34% of trades to break even — anything above that is profit.
"The trend is your friend — until it bends."
— Trading proverb
Try It Yourself
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