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Building Scanners: SMA Crossover

SMA (Simple Moving Average) Definition

Before we dive into SMA Crossovers, let's understand what an SMA is. The Simple Moving Average is a technical indicator that calculates the average of a selected range of prices, typically closing prices, over a specified period. It's a tool to smooth out price data and to identify the direction of a stock's trend.

For example, if you wanted to calculate the 20 day SMA, you would take the closing price of the last 20 days and divide it by 20. This would give you the average price of the last 20 days. Smooth this line out over a chart and you have a 20 day SMA, commonly referred to as the 20SMA.

The SMA Crossover is a great way to identify both bullish and bearish signals in the market. It is a lagging indicator, meaning it is based on past prices, but it is still a great way to identify trends in the market.

SMA Crossover Explained

An SMA Crossover occurs when two moving averages of different lengths cross each other on a chart. This is typically observed in two scenarios:

  • Bullish: When the shorter SMA crosses above the longer SMA, this is considered a bullish signal.

    For example, if the 20SMA crosses above the 50SMA, this is considered a bullish signal.

  • Bearish: When the shorter SMA crosses below the longer SMA, this is considered a bearish signal.

    For example, if the 20SMA crosses below the 50SMA, this is considered a bearish signal.

In this below image, we have added the SMA20 and SMA50 to the chart. The SMA20 is the blue line, and the SMA50 is the orange line. We will always focus on the smaller SMA as the line that is considered the crossing line.

As you can see, when the blue (SMA20) line crosses below the orange (SMA50) line, the stock enters a bearish trend. And then later on, the blue (SMA20) line crosses above the orange (SMA50) line when its on a bullish trend.

20SMA and 50SMA displayed on a chart

Now that we understand SMA and how we can identify trends with it, lets build Prosperse scanner to automatically notify us when any stock enters a bullish trend. This will run 24/7 and notify us when a stock enters a bullish trend, so we can take advantage of the move.

Building the SMA Crossover Scanner

To demonstrate this, the scanner we will build will have this condition:

  • The last SMA20 should be greater than the last SMA50

This would indicate the exact moment or whichever timespan you've selected where the SMA20 crosses above the SMA50.

Open a new scanner and give it a name. We will call ours "SMA Crossover (Bullish)". Then select your time span, and fill in the other required fields. Then, we create our simple condition. This .gif will demonstrate how to add our required condition.

Creating a SMA Crossover Scanner

Note: This scanner searches for stocks currently in a Bullish Trend, if you want to search for Bearish Trending stocks, you can just change the Greater than operator to a Less than operator.

Summary

That's it! Save your scanner and it will passively search for all of those conditions to be met. When a stock is found, you will be notified via email and in the Prosperse dashboard.

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