Decoding Death Cross and Golden Cross For Crypto Traders
What is Death Cross & Golden Cross In Trading World?
Let’s set the Context :
You would have often heard this trading terminology from crypto TA experts on YouTube and may have struggled to decode it.
So today though to discuss death and the golden cross, two of the most important indicators in the trading world of crypto or stocks, to help you all to understand its importance.
In the Technical Analysis, tons of data goes into use to come up with the various chart patterns, which is utilized to analyze the market trends in the world of crypto and stock trading. Sometimes these trend lines form curves and cross in ways that form shapes, often given funny names like “cup with handle,” “head and shoulders,” and “double top.”
A death cross and a golden cross is one such popular pattern that signals bullish and bearish trends in the market. Let’s get started by first debunking these questions
- What is the Golden cross?
- What is the Death Cross?
What Is Golden Cross?
A golden cross suggests a long-term bull market going forward
The golden cross occurs when a short-term moving average(like 50 DMA) crosses over a major long-term moving average(like 200 DMA) to the upside and is interpreted by analysts and traders as signaling a definitive upward turn in a market.
This tells you that the short-term trend is much stronger than the long-term trend, and therefore, the market can be considered bullish. However, before the golden cross happens, the price will likely already have rallied quite a bit from the bottom.
What are the three stages of the Golden Cross?
Golden cross goes through these 3 stages :
- A downtrend that eventually comes to end when selling is depleted
- At stage two, Short term moving averages cross through long-term Moving averages
- At the third and final stage, uptrend continues leading to higher prices for the stocks/crypto in concern
What Is Death Cross?
The death cross occurs when the short-term average trends down and crosses the long-term average, basically going in the opposite direction of the golden cross.
For example, when the 50-day moving average drops below the 200-day moving average.
Death cross tells you that the short-term trend is much weaker than the long-term trend, and therefore the market can be considered bearish.
Bitcoin Death Cross Example:
In June 2021, one such Death cross pattern was observed, which can be seen in the chart below
Death cross happens when a bullish trend reverses, and a bearish trend is underway. It can take some time for it to occur on the chart, depending on how close the two moving averages are to one another. In general, the steeper the bullish trend, the longer it will take for a bearish cross to happen once the price starts reversing.
Is there any Catch to be taken care of?
There are differences of opinion among technical analysts, in terms of what should be the apt and meaningful moving averages.
- Some analysts define it as a crossover of the 100-day moving average by the 50-day moving average
- Some define it as the crossover of the 200-day average by the 50-day average.
- Also Analysts lookout for the crossover occurring on lower time frame charts as confirmation of a strong, ongoing trend.