Moving averages are one of the most common technical indicators used in chart analysis. The reason is because it helps forecast future price movement by comparing it to average price action in the recent past, giving traders a range of expectations in which an asset will fluctuate. Because it’s such a common bar for price movement expectations among traders, it often behaves as a catalyst forming support and resistance along certain trendlines.

I was reading the ETF Trend Following Playbook by Tom Lydon the other day and came across an amazing trick for manipulating this indicator. In it, there was a chart illustrating price action of the S&P 500 for the past several years. It looked a little something like this:

Here you can clearly see the 2008 stock market crash that heralded the recession of 2009. What’s funny is how clear the technical pattern is for both the downturn and the recovery. On both swings, when the SPY crosses over the 200 day EMA and uses it as resistance on the downturn or support on the upturn, it confirms a significant reversal of a previous trend. This handy little trick traces back several decades on the S&P 500 and could be your next great trade.

My recommendation for this trade would be to place a short position on the SPY as soon as it moves one ATR below the 200 day EMA after recently using it as resistance, or place a long position on it as soon as it moves one ATR above the EMA after recently using it as resistance. Following this pattern can easily draw out consistent, healthy profits trading the S&P 500 SPDR Exchange Traded Fund, as well as many other stocks and funds which are prone to follow the same pattern.