Golden cross is a bullish technical trading indicator that signals an imminent price rise of the asset/stock/cryptocurrency.
What Is a Golden Cross?
A golden cross is formed when a slow moving average is crossed by a faster one
. The most popular moving average setting used by traders is the 50-day moving average and the 200-day moving average
How Is a Golden Cross in a Trading Chart Formed?
In this setting, the faster-moving average has to cross the slower-moving average from below for a golden cross to be formed on the trading charts. Other examples of golden crosses can be seen in the combination setting of 5-day and 15-day averages, however, longer periods are more reliable and provide stronger signals of an asset/stock/cryptocurrency.
There are three major stages of a golden cross.
- The first stage marks the end of the downtrend as the gap (denoting volume) between the 50-day moving average and the 200-day moving average starts to decrease.
- The second stage is where the 50-day moving average crosses the 200-day average, forming a golden cross.
- The third and final stage is the uptrend that comes after the golden cross appears. This is also a good point to take an entry into an asset to gain the maximum benefits as the uptrend continues to grow.
Notice how the graph was moving in a horizontal direction when the purple line signifying the 200-day moving average was above the yellow line which is the 50-day moving average. When the yellow line crosses the purple one in the upward direction, a golden cross is formed and the price shoots up from there.
A golden cross is considered as the most definitive signal of a bull market and a strong buying signal
for many traders, however, some only consider it to be a confirmation rather than a signal of entering the market. Experienced traders advise not to take the golden cross as a sole trading signal
but see it as part of a system.
Is the Golden Cross Indicator Reliable?
There may be skepticism and difference of opinion among the financial analysts when it comes to the golden cross indicator; however, it has performed incredibly well in recent times. A great example of it would be the S&P index which increased by more than 50% after the last golden cross appeared in its trading charts.
What Is the Golden Cross Trading Strategy?
The first trading strategy is safe and most popularly used which is to make an entry into the market when the golden cross is formed. However, some traders also enter the market as soon as the moving averages move in a direction to form the golden cross in order to gain the advantage of entering the market before the formation.
For short-term traders, it is advisable to use the 100-day moving average instead of the 200-day one. This strategy helps in shorter time frames, like 1-hour charts.
A lot of traders use the golden cross with a variety of technical indicators
to understand the price and volume activity from different angles before making a buying/selling decision. These technical indicators include, but are not limited to moving average convergence divergence (MACD
), on-balance volume (OBV
), accumulation/distribution indicator
, relative strength index (RSI
), and the stochastic oscillator