The Dreaded Death Cross and Shining Golden Cross

The Dreaded Death Cross and Shining Golden Cross

The death cross and the shining golden cross are two crucial trading signals that ought to be understood by any avid trader. These technical indicators are formed when two moving averages crisscross on a trading chart, i.e., the 50-day and the 200-day moving averages point to either a bullish or bearish trend. Read along to learn more about these two crucial technical indicators and how they can help you make wise investment decisions.

Death Cross and Golden Cross Explained

To understand the death cross and the golden cross, you first need to know the moving average (MA). MA is the average of an array of prices of an asset over a particular period. Moving averages are established by calculating the mean of the asset’s closing price. This is done by summing prices in the set and then dividing the sum by the number of elements in the group. Moving averages do not include days like weekends and holidays when the market is closed. The most common periods for calculating MAs are 10 days, 50 days, 100 days, and 200 days.

A death cross occurs when the 50-day MA falls below 200-day MA and often points to a bear market. Conversely, the golden cross occurs when the 50-day moving average rises above the 200-day moving average and often points to a bearish market.

Once a crossover has been spotted, the long-term MA is often considered a major support level (in the case of the golden cross) or resistance level (in the instance of the death cross) for the market from that point onwards.

Death Cross in Cryptocurrency Trading

Death Cross in cryptocurrency trading is formed when a short-term moving average falls below that of a long-term moving average. Usually, the 50-day MA and the 200-day MA are used to identify a Death Cross. Since long-term MAs are often used to identify the death cross chart pattern, they are mostly used for gauging long-term market sentiments.

Nonetheless, it’s still possible to use the death cross chart pattern to gauge the mid-to-long term market tone. Since the 50-day MA is calculated using a much shorter time frame than the 200-day MA, it predicts the short-term price action more accurately than the 200-day MA. As such, a death cross formed when the 50-day MA line crosses below the 200-day MA indicates a short-term price momentum.

Most traders dread the death cross chart pattern owing to its bearish implications. However, it should not be feared since market history points out that it tends to pave the way for a near-term price rebound with good returns. Therefore, for some traders, the death cross may mean an impending prospect of buying a digital asset at a lower price before the prices rebound.

Golden Cross in Cryptocurrency Trading

The golden cross cryptocurrency signal occurs when the short-term moving average, i.e., the 50-day MA goes above or crosses over the long-term moving average, i.e., the 200-day MA. This chart pattern depicts optimistic price sentiments among traders and predicts an impending breakout with upward price momentum.

The golden cross chart pattern consists of three stages. The first stage is a downtrend that eventually terminates with the depletion of the selling. The second stage is where the shorter moving average crosses over, the longer moving average. The final stage is the continuing market uptrend which concludes with higher prices.

A golden cross is often considered a positive market indicator that signals a looming bullish trend. The 50-day MA and the 200-day MA are mostly used when searching for a golden cross pattern on trading charts. Using longer moving averages when trucking for golden cross patterns is often recommended as they offer stronger signals relating to the upward price movements.

Are Golden/Death Crosses Reliable?

As per the market history, death crosses and golden crosses are often regarded as reliable trading signals. However, they are best used in markets with substantial trading volume since they are more accurate. Either the golden cross or death cross may signal an upcoming market trend or confirm a market change that has already occurred.

In Summary…

A death cross and a golden cross chart patterns are exact opposites. A golden cross predicts a bull market going forward. In contrast, a death cross signals a bear market with the period depending on which moving averages were used to identify the death/golden cross pattern. In addition, both the death cross and golden cross can be used as a solid confirmation of a trend change that has already occurred.

By understanding the death and golden cross chart pattern, you’ll be well positioned to make accurate technical analyses for successful trade outcomes. These chart parts are best used if you’re a long-term trader who buys and holds assets, waiting for market movement. The crosses are a good signal to integrate into your selling or buying strategies. If you’re a day trader or short-term crypto trader, the crosses aren’t quite helpful-you may want to use other trading signals such as ascending/descending triangle. 

FAQs

What is a Death Cross in cryptocurrency?

A death cross occurs when the 50-day moving average crosses below the 200-day moving average. When this happens, the trend has changed from up to down to down to up. Although this may be due to technical factors, it also indicates that something fundamental changes. Traders should always check for any signs of divergence, which could indicate a change in trends.

What is a shining golden cross in cryptocurrency?

A shining golden cross refers to when a cryptocurrency changes from rising to falling dramatically, usually in response to governmental regulations, hacks, and other external events. Examples include MtGox losing 600,000 Bitcoins in 2011, Bitstamp having 500 BTC stolen in 2014, Bithumb getting hacked for USD 30 million worth of Bitcoin, and Coincheck hacking for USD 530 million worth of NEM. However, some cryptocurrencies, such as Ethereum, remain stable since they do not rely on any central authority and therefore cannot be influenced by the actions of governments or hackers.

Can I use a death cross to determine when to buy a cryptocurrency?

Yes, although there are better ways to predict future price movements, such as technical analysis or fundamental factors. A death cross takes place when two trend lines cross each other. The first line represents the current upward movement, and the second line represents the current downward movement. A death cross usually occurs after the market touches resistance levels if you see a strong trend reversal pattern. This means the market may go down for a while until it reaches support levels. Therefore, using a death cross to identify crypto trends is risky.

When is a good time to invest in cryptocurrency?

The best time for investing in cryptocurrencies is when other investments seem too risky. This usually happens when stocks start falling sharply, along with the stock market indexes. If you want to invest during financial crises, it’s probably better to look into stablecoins like Tether or USD Coin. However, investors should be careful about buying cryptocurrencies because they could lose all their money quickly.