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I was searching the web for basic algorithmic trading concepts and came across the following article. http://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp

There is a section of the article which refers to simple trade criteria.

"Suppose a trader follows these simple trade criteria:

  • Buy 50 shares of a stock when its 50-day moving average goes above the 200-day moving average
  • Sell shares of the stock when its 50-day moving average goes below the 200-day moving average"

Does this seem like a reasonable basic trading algorithm strategy? If not, can you point me to a better one?

I find it strange that they are suggesting to buy when the stock is up, and sell when the stock is down.

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    it's the nature of averages. when the near term average breaks the long term average barrier, tomorrow the long term average will be a little higher as a result. When the near term average falls to break the long term average barrier you'll probably still be at a profit when you sell even though you're selling while it's falling.
    – quid
    Commented Mar 15, 2016 at 22:24
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    Yes, it's a reasonable basic trading algorithm strategy - but if your question is "is it profitable?" then the answer is no (you may find backtests proving otherwise online: they are probably flawed)...
    – assylias
    Commented Mar 16, 2016 at 17:55
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    The big guys have teams working on creating the algorithms and coding it. They utilize the best computers/ latest technology and are generally connected to the exchanges using direct lines. You are going to have a tough time competing with those algorithms.
    – edocetirwi
    Commented Mar 16, 2016 at 18:56
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    @edocetirwi I consistently hear people saying it is not worth getting involved in algorithmic trading. But, I don't have to beat the big guys to make money. I can just beat everyone else that isn't using their own algorithms. Do you know the joke... I don't have to outrun the bear. I just have to outrun you.
    – ADH
    Commented Mar 16, 2016 at 23:17
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    @ADH you should check out quant.stackexchange.com
    – NuWin
    Commented Mar 17, 2016 at 21:29

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This strategy is called trading the 'Golden Cross' if the 50 day SMA moves above the 200 day, or the 'Death Cross' when the 50 day SMA moves below the 200 day SMA. Long-term indicators carry more weight than shorter-term indicators, and this cross, in a positive direction signals a change in momentum of the stock. You will not catch the very bottom using this method, but there is a better chance that you will catch a move near the beginning of a longer-term trend.

Golden Cross Information - Zacks

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