Death cross and golden cross strategies

Golden Cross vs. Death Cross: Introduction

The Golden Cross and Death Cross are two of the most widely recognized and easily identifiable chart patterns in technical analysis. Both long-term investors and swing traders can utilize Golden and Death Crosses to pinpoint trends and determine potential entry and exit points for their trades.

Both the Golden Cross and Death Cross occur when an asset's short-term moving average (MA) crosses above or below its long-term moving average. Before delving deeper into the Golden and Death Crosses, let's revisit what a moving average entails.

What is the Simple Moving Average (SMA)?

The SMA (Simple Moving Average) is a technical indicator that calculates an asset's average price over a set period. Moving averages are commonly represented as lines on financial charts that overlay price data. Shorter-term moving averages are frequently employed to detect immediate trend shifts, whereas longer-term moving averages can offer insights into the broader market direction.

Golden cross

A Golden Cross occurs when an asset's short-term moving average surpasses its long-term moving average in an upward direction. Traditionally, a Golden Cross is identified by using the 50-day moving average as the short-term MA and the 200-day moving average as the long-term MA.

In technical analysis, traders and analysts often interpret the Golden Cross as a bullish indicator. This is because it signifies that an asset's recent average price has surpassed its long-term average price, suggesting potential upward momentum in the market.

Death cross

A Death Cross is essentially the opposite of a Golden Cross. It occurs when the 50-day moving average falls below the 200-day moving average. This pattern is generally viewed by traders and analysts as a bearish indicator, signaling potential downward momentum in the market.

Golden Cross and Death Cross Timeframes

While the Golden and Death Crosses are traditionally identified using the 50-day and 200-day moving averages, traders may adjust these intervals based on their specific goals. Despite variations in the timeframes used, both terms consistently denote a short-term moving average intersecting a significant long-term moving average.

However, it's crucial to understand that moving averages with shorter timeframes are more reactive to short-term price fluctuations. This increased sensitivity can lead to more false signals or "false positives" when identifying Golden and Death Crosses.

How to Trade the Golden Cross and the Death Cross

Both Golden and Death Crosses are considered lagging indicators in technical analysis. While they can validate or confirm existing long-term trends in the market, they do not forecast or predict these trends. Instead, they provide traders and analysts with hindsight about potential shifts in market momentum based on historical price data.

A Bitcoin Golden Cross - Example

In November 2021 BTC/USD entered a bear market, which was confirmed by the death cross that appeared on the 14th of January 2022. In late November 2021, BTC/USD was priced at around $69,000. As of mid August 2022, it is trading at around $23,700.

A Bitcoin Death Cross

In November 2021 BTC/USD entered a bear market, which was confirmed by the death cross that appeared on the 14th of January 2022. In late November 2021, BTC/USD was priced at around $69,000. As of mid August 2022, it is trading at around $23,700.