The main thing to remember is that this is not a timing technique. It is only to help traders see how strong or weak the current trend is and when an trader may want to move their money into safety or be more aggressive and add to their positions. Moving averages are a trend following technical analysis tool. They are created by averaging past closing prices. Thus we are using past prices, we are seeing what the trend was, not necessarily will be however it is a good indicator if the trend will continue.
To use this particular trading technique, lets look at a weekly chart of the S&P 500 Index. It has both a forty week simple moving average (SMA) and an eighty week SMA on the chart. If the market is bullish, price should be above the 40 SMA. The 40 week SMA should also be higher than the 80 week SMA. A bear market is signaled when the 40 week SMA finally crosses below the 80 week SMA. When this happens, the forex or stock markets usually move down quickly and for an extended period of time. A trader should look to trade those securities that thrive in bearish markets when this crossover occurs. They can sell futures, buy puts, or even invest in inverse ETF’s.You should also keep in mind that this technical analysis technique is not a perfect science. Nothing is perfect when trading but this can help you make winning trades.