A basic technical indicator that occurs in the market when a shorter-term moving average for assets rises above the longer-term average
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What is a Golden Cross?
A Golden Cross is a basic technical indicator that occurs in the market when a short-term moving average (50-day) of an asset rises above a long-term moving average (200-day). When traders see a Golden Cross occur, they view this chart pattern as indicative of a strong bull market.
Chart Source
Many investors view the Golden Cross as a “holy grail” chart pattern. They consider it one of the most definitive signals of a bull market and, therefore, a strong buy signal. However, there are also analysts who question the validity of the Cross pattern. They do so because of the limited research to detail and prove its legitimacy as a trading mechanism. The most recent evaluation opportunity is in favor of the Golden Cross. Since the pattern last occurred in the S&P 500 Index, the index has gone up by more than 50%
There is a second, converse indicator – the Death Cross – which is the inverse of the Golden Cross. The Death Cross occurs when a security’s 50-day moving average crosses from above to below its 200-day moving average. The Death Cross indicates a bear market going forward.
The Three Stages of a Golden Cross
There are three specific phases for the Golden Cross. The first phase is where a downtrend exists but is on its last legs because selling interest is being overpowered by stronger buying interest.
The second phase involves the emergence of a new uptrend. The breakout of the new uptrend is marked when the short-term average crosses from below to above the long-term average, forming the Golden Cross.
In the final phase, the new uptrend is prolonged, with continuing gains that confirm a bull market. During this phase, the Golden Cross’ two moving averages should both act as support levels when corrective downside retracements occur. As long as both the price and the 50-day average remain above the 200-day average, the bull market is considered as remaining intact.
How to Use the Golden Cross
Traders can utilize the Golden Cross to help determine good times to both enter and exit the market. The indicator can also be a tool that traders can use to help them better understand when it makes sense to sell and when it’s better for them to buy and hold.
Traders looking to buy a security will sometimes enter the market when the security’s price rises above the 200-day moving average rather than waiting for the 50-day moving average to make the crossover. This is because the Golden Cross is often a significantly lagging indicator. It may not occur until well after the market has already turned from bearish to bullish.
Traders who sell short the market may use the golden cross as a signal that the bear market is over and it’s time to exit their positions.
The Golden Cross is applied to trading both individual securities and market indexes such as the Dow Jones Industrial Average (DJIA).
Some traders opt to use different moving averages to indicate a Golden Cross. For example, a trader might substitute the 100-day moving average in place of the 200-day. The pattern can also be looked for on shorter time frames, such as an hourly chart.
Finally, many analysts use complementary technical indicators to confirm the indication from a Golden Cross. Momentum indicators such as the Average Directional Index (ADX) or the Relative Strength Index (RSI) are popular choices. This is because momentum indicators are often leading, rather than lagging, indicators. Therefore, they can help in overcoming the Cross pattern’s tendency to significantly lag behind price action.
Resistance to the Cross Signal
Some traders and market analysts remain resistant to using the Golden Cross (and the Death Cross) as reliable trading signals. Their objections principally stem from the fact that the Cross pattern is frequently a very lagging indicator. Looking at the chart above, you can see the market bottomed out and turned to the upside at a price level substantially below where the Golden Cross occurred. The Cross pattern may provide limited predictive value for traders and be more valuable as confirmation of an uptrend, rather than as a trend change signal.
The Golden Cross is significant because it is a technical indicator used by many traders and analysts. The chart pattern is, therefore, likely to attract a significant amount of buying in a market. If it does, then it may become a sort of self-fulfilling prophecy. Traders see the pattern and buy the market, and their buying is sufficient to create or sustain a bullish trend.
Related Readings
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FAQs
A Golden Cross is a basic technical indicator that occurs in the market when a short-term moving average (50-day) of an asset rises above a long-term moving average (200-day). When traders see a Golden Cross occur, they view this chart pattern as indicative of a strong bull market.
How bullish is a golden cross? ›
Key Takeaways
A golden cross suggests a long-term bull market going forward, while a death cross suggests a long-term bear market. Either crossover is considered more significant when accompanied by high trading volume.
How reliable is Golden Cross? ›
Are Golden Crosses Reliable Indicators? As a lagging indicator, a golden cross is identified only after the market has risen, which makes it seem reliable. However, as a result of the lag, it is also difficult to know when the signal is false until after the fact.
What does a gold cross symbolize? ›
The cross symbolizes the sacrifice of Christ and the Christian faith. A gold cross pendant acts as a constant reminder of this tremendous gesture of love, providing strength and solace. It is also thought that a gold cross pendant provides protection from evil energies and good fortune.
What is the spiritual meaning of a golden cross? ›
While wood was the cross He died on, His resurrection is more closely associated with gold. The use of gold for the cross instead of wood in jewelry follows the biblical references receiving beauty for ashes, streets of gold in heaven, and other references to true beauty and happiness resting only in Jesus alone.
What is the strongest bullish pattern? ›
The most powerful candlestick pattern is often regarded as the Hammer (bullish) or the Shooting Star (bearish) pattern, as they typically indicate a strong reversal signal when they appear after a downtrend (Hammer) or an uptrend (Shooting Star).
What is the death cross in the bear market? ›
The death cross is a chart pattern that indicates the transition from a bull market to a bear market. This technical indicator occurs when a security's short-term moving average (e.g., 50-day) crosses from above to below a long-term moving average (e.g., 200-day).
How do you identify golden crossover stocks? ›
How can I find Golden Crosses?
- Screen for the Golden cross. The 50d vs 200d Moving Average Ratio should be equal to or greater than 100.
- Screen for the Death cross. The 50d vs 200d Moving Average Ratio should be lower than 100.
The Bottom Line
Golden Crossover is a simple yet powerful technical analysis tool that can significantly improve your trading success. By understanding the basic types of moving averages and following key tips and strategies, you can effectively implement golden crossover in your trading plan.
What time frame is best for Golden Cross? ›
What timeframes should I use these signals on? Investors often use these signals on a daily price chart since the death cross and golden cross use 200-day and 50-day MAs. Traders are not confined to these parameters. They may opt to use 200-period and 50-period MAs on any timeframe of their choosing.
We found that 78% of the trades were winners, with an average trade gain of 15.4% and an annual return of 6.6%. This, we might argue the success rate is pretty high, although what matters is the total return.
What does a golden cross indicate? ›
The Golden Cross is a chart pattern recognized by the crossing of a short-term moving average over a long-term moving average, typically the 50-day moving average crossing above the 200-day moving average. This event is considered a bullish signal, suggesting a potential uptrend in the market.
Is Golden cross SMA or EMA? ›
The Golden Cross occurs when a short-term moving average (e.g., the 50-day SMA) crosses above a long-term moving average (e.g., the 200-day SMA). This is viewed as a bullish signal.
What is MacD Golden cross? ›
A Golden Cross is a technical analysis pattern that occurs when a shorter-term moving average crosses above a longer-term moving average on a price chart. It signals a potential shift upward price movement in trend from bearish to bullish.
How do you predict a golden cross? ›
The phases of the Golden Cross in the stock market are as follows. If a stock's short-term moving average, say 50 days, rises above the long-term moving average, say 200 days, it appears on the technical charts as the Golden Cross in the stock. It's a sign of bullish sentiment.
What is the golden cross period? ›
A golden cross pattern occurs in three steps:
The market trends upward after a prolonged downtrend. The shorter-term (typically 50-day) MA begins to rise at a faster pace than the longer-term (typically 200-day) MA. The 50-day MA crosses above the 200-day MA.
What does a Bollinger band tell you? ›
Bollinger Bands® help you identify sharp, short-term price movements and potential entry and exit points. Flexible and visually intuitive to many traders, Bollinger Bands® can be a helpful technical analysis tool.
What happens when MACD crosses? ›
When the MACD line crosses from below to above the signal line, the indicator is considered bullish. The further below the zero line the stronger the signal. When the MACD line crosses from above to below the signal line, the indicator is considered bearish. The further above the zero line the stronger the signal.
