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Golden cross & Death cross

Golden cross & Death cross

5 min reading

The golden cross and the death cross all explained in this article.

Golden cross & Death cross

Golden cross & Death cross

When it comes to technical analysis, chart patterns are plentiful. However, there are many other patterns available useful to day traders, swing traders and long-term investors. These are the golden cross and the death cross. Let’s break them down in more detail.

What is a golden cross? 

A golden cross appears when the short-term moving average is above the long-term moving average from below to above, signalling a possible strong upward movement in the price of an asset. There are two important  formation aspects of the golden cross. Firstly, due to the depletion of the sellers’ strength, the downward strong trend must come off, resulting in less market pressure from sellers. The second integral component is the short-term MA must rise above the longer-term MA, usually the 50-period MA and the 100-period MA are involved. The Golden Cross is best analysed against the dynamics and signals of the monthly, weekly and daily graphics.

Golden Cross trade

At this point you know what a golden cross is and how to identify it on a price chart. However, there are several approaches to trading with a golden cross. One states that you should look for a golden cross following a long-term declining trend. The signal after a very long downtrend should be quite powerful. The next tip suggests avoiding large gaps between the mean values of the moving averages. You should observe not only the moving averages, but also the price action. When such a large gap arises, it is best not to take any action once a golden cross has been identified. Another approach recommends using the golden cross in conjunction with the double bottom. Firstly, you should check out the double bottom model of the graph. Then look for the golden cross to appear. Then wait for the price to retest the SMA200. Buy after the retest and set a stop loss below the minimum of the double bottom formation.

What is a death cross?

There is also the reverse phenomenon: a death cross is formed upon long-term depletion in buying strength with the short-term asset moving average dropping below a long-term moving average, usually a 50-period and a 200-period MA. As a golden cross, the death cross is best sought on the higher time frames, since the trend should be confirmed over time and not dependent on short-term intraday dynamics. It should be noted that death cross and gold cross signals may not always be ideal, but detecting such crosses along with analyzing other indicators is an invaluable opportunity to navigate the market chaos of the most volatile asset class in the world.

Death Cross trading strategy

You can’t only open long positions with the Golden Cross strategy, but you can also open sell by applying the “death cross” strategy. The rules for trading this strategy are similar. You wait for the The 50-day moving average has crossed below the 200-day moving average on the higher time horizon. You should then switch to a lower time interval and start a selling trade upon receiving one of the signals. The trade could be blocked as soon as the opposing signal, the Golden Cross, appears.

However, be cautious about trading the Golden Cross in periods of consolidation, as the market can deceive you. Try to employ the Golden Cross as a tendency filter. Open a trade on a lower time frame in the direction of the main trend when an extra signal occurs. This way you will be able to get in on the deal at a more favourable rate and with as minimal risk as possible. You can leave the trade upon the appearance of a contrary signal, the Cross of Death, appears. The ” Death Cross” strategy has identical goals. Have a profitable trade!

Conclusions

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