Understanding Golden Cross Dynamics

The Golden Cross - a technical indicator that is outstanding in predicting a bullish trend with regards to both stocks and other existing securities. Here's an easy way to understand golden cross dynamics.

Understanding Golden Cross Dynamics
Understanding Golden Cross Dynamics

Defining the term Golden Cross:

The Golden Cross is that one indicator which sees two moving averages within it - they are primarily the short-term and the long-term average. This is a bullish signal whose formation takes place after the crossover of a security's short term moving average (taking, for instance, a moving average of 15 days). This will eventually end up breaking over the longer term average (taking, for instance, a moving average of 50 days).

The logical reasoning behind this is that, as per technical analysts, is that these long term technical indicators carry more weight as they support incredible profit potential along with the emergence of a bull market, which reinforces the idea of a high trading volume.

In the example below, this can be seen by the slow moving average (yellow) passing below the fast moving average (blue).

golden cross

Note: The golden cross strategy only makes sense for the bull market and does not apply to a bear market.

What is a stock Death Cross?

A death cross occurs when the moving average of golden crosses is in the short term surpasses 50 days but still hasn't reached a new uptrend of attaining equal to or more than the 200 day moving average.  In the example below, this can be seen by the slow moving average (yellow) passing above the fast moving average (blue).

death cross example

This then raises a question, which is:

What is the significance of the term Moving Average Crosses?

The term moving average crosses, in a nutshell, is a reference to chart pattern/daily chart and its price trends. A crossover over here will only take place when the short term moving average surpasses the long term moving average.

Evaluating the Golden Cross Forms in Place:

This technical indicator, known as the Golden Cross, primarily exists to ensure that the long time frame in the bull market can be projected strongly. In essence, there are three stages that exist when the subject comes to identifying the golden cross pattern. The first one is having the security "bottomed out," which is also a reference to its volume having sold low on the stock market.

The second stage is where the prices will move upwards until the fast-moving average crosses exceed the slow moving average crosses.

The last stage is the idea that the long term trend of the golden cross set up moves in the final upward turn.

Having clarified the above, another question, which then naturally tends to arise, is:

How to guarantee that the Golden Cross occurs?

Traders will be able to utilize this platform once they are familiar with the golden cross forms we have mentioned above. The golden cross trading strategy is entirely simple if an investor adequately understands what they need to buy and hold.

Many traders determined to purchase security will choose to enter the market when the current price moves beyond 200 day moving average. This makes it easier for investors to break into the market and simultaneously avoid waiting for the crossover of the 50 days moving average.

how to trade the golden cross

One incentive that investors and day traders have for doing the above is that the Golden Cross, in comparison to other indicators, is a lagging indicator. The chances of it occurring are uncertain unless the market adopts a bullish trend.

However, the Golden Cross signal can be a lagging indicator doesn't mean that it isn't useful. It is best suited for high trading volumes. It is applicable for trading as both individual stocks and other market indexes akin to the Dow Jones Industrial Average (DJIA).

Is there a way to overcome the lagging price action signaled by the Golden Cross?
There is indeed away. Many analysts now in their technical analysis use other technical indicators to reaffirm the indication obtained from the Golden Cross. Here, the Relative Strength Index is a popular choice, followed by the Average Directional Index.

What is MACD Golden Cross?

The Moving Average Convergence/Divergence can be classified as momentum indicators that appear on a chart as two sell signal lines, thereby oscillating without any boundaries.

Delving into the mechanics of the Moving Average Convergence Divergence Indicator:

macd golden cross

The way the indicator at hand works is truly fascinating.

Firstly, if the MACD is ever to cross above zero, it will be considered bullish, whereas below zero will be bearish. Secondly, if the MACD were ever to turn from the threshold below zero, it too will be regarded as bullish, whereas being turned down from above zero will be bearish.

During the trading ranges of the Golden Cross, the MACD will cross back and forth between the signal line. But, the issue with this is the reduction in volatility, which is why such situations will be avoided during trading strategies.

However, if there is a divergence between the MACD along with the price action, then the technical analysis is strong, and the likelihood will be the occurrence of crossover signals.

How do you trade with the Golden Cross?

how to trade with the golden cross

Trading the help of the Golden Cross is fairly simple, and below we'll tell you how we are making these bold claims. By the end of this discussion, we warrant that you'll be saying the same thing as us. With that being said, let us explore different trading options:

Strategy #1: Being able to anticipate:

If we talk about the downside of the Golden Cross setup, which is lagging, then an honest opinion here is that there are many other indicators that do the same thing. The tip is going with a strong downtrend. This will take place once you make the efforts to get as far away as possible from the slow moving average.

Once this is achieved, you wait for the price to break - this will result in the fast moving average getting to the upside. The key is, identifying when the distance between the two moving averages is the most because that is your queue of going long.

Strategy #2: Waiting for the uptrend (Rising tide):

We are all aware that the prices move in waves here. Even if you are a newbie, the best advice we give you is to wait until the price ends up touching the fast moving average. But, another thing can take place: you can wait for bullish reversal patterns to occur to get the most from the rising tide lifts.

The bullish reversal pattern is where a bear market, which previously had a downtrend, is now moving in the definitive upward turn.

These are two golden strategies, which are bound to make your Golden Cross journey a whopping success if you give it a chance!

Dissecting the EMA and SMA Moving Averages:

The most invaluable Golden Cross moving averages are undoubtedly the 50 EMA and the 200 SMA. Now, the Simple Moving Average (SMA) focuses on the last number of items, but with the help of the average value. But, the case with the Exponential Moving Average (EMA) is more interesting in the recent prices which have been employed.

Nonetheless, both have the objective of providing a reliable pricing direction and are therefore regarded by investors as a great bet!

Is the Golden Cross Strategy profitable?

is the golden cross strategy profitable?

The Golden Cross is a great strategy that works well in the realm of the stock market and the digital currency outlet. But you need to possess the fundamental knowledge needed to make investment decisions adequately.

Once you brush up a little on your knowledge of the moving averages, the complexities of the Death Cross, and, course, the Golden Cross, you will be in a superior position to make the choices that suit you for the better.

The Bottom Line: Golden Cross is most traders' favorite strategy!

why is the golden cross strategy popular?

Mainly seen to be depicting a bullish market sentiment, the true Golden Cross trade is a reality if you give it a chance. Although the pattern may tend to lag, you still have the benefit of the three stages and other support levels, such as the MACD, the SMA and the EMA, which make it all the more profitable to invest.

Yes, if the Death Cross does take place and signals a bear market, it will be monetarily before the Golden Cross occurs and takes you to constant success. But, the catch here is to be patient and have adequate knowledge regarding the moving averages, the concept of the Death Cross, and the varying trading hacks out there. If you follow the trading ways given in this blueprint that we put your way earlier and incorporate them while beginning to trade, we guarantee you nothing but success!

We hope you were able to clarify many of your concepts today and are not en route to taking your first step in the world of Golden Crosses with confidence.

Some questions our audience tends to ask:

How do I check my Golden Cross? Owing to the Golden Cross being a lagging indicator, the best way is to make use of momentum indicators such as the ADX or the RSI to confirm the Golden Cross.

1) Is there an issue if the 50 day moving average crosses the 200 day moving average?

The following signifies a strong bull market trend, which is expected to go upwards in the coming time periods.

2) What does a cross mean on a chart?

If there is a Death Cross, that is an indication of a potential sell-off in the market. However, if there is more. A crossover on a chart is also a possibility, which usually arises when an intersection of the price and the technical indicator lines is.

In layman's terms, it is when the two indicators end up crossing themselves.

3) What is the need for crossovers?

Crossovers are needed to give an assessment of a financial instrument's performance. It also gives a clue as to what the coming or predicted trend changes will be and whether there are any chances of reversal or breakouts.

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