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Technical analysis is a technique for forecasting the future performance of a particular asset or the market as a whole. The fundamental principle of technical analysis is that market trends tend to replicate past patterns. Therefore, there’s a strong chance that an asset that is trending is only repeating a pattern it has already followed. Technical indicators are specialized instruments traders use to analyze the asset of their choice.
Traders and investors have recently begun employing technical analysis in the Crypto market to determine when to enter the markets for a profitable trade. The words “golden cross” and “death cross” refer to a technical indicator called the Moving Average (MA). So, before we dive deep into learning about the golden and death cross, let’s have a quick overview of the moving average.
What is a Moving Average (MA)?
The moving average is a common stock indicator in technical analysis that assists in creating a continually updated average price. MAs are typically generated to assess an asset’s trend direction or to pinpoint its support and resistance levels.
The average price of a certain asset over a specified time period is what the MA, a technical indicator, refers to. The asset’s trend is shown by the MAs, which can be either bullish (positive, upward) or bearish (negative, downward).
When trading Crypto charts in real time, MAs offer helpful signals. Additionally, they can be adjusted to 10, 20, 50, 100, or 200-day periods, among others. Such times emphasize market trends and make them identifiable.
Let’s jump on to understanding what the golden cross and the death cross are.
What is a golden cross in Crypto?
The “golden cross” is basically a chart pattern that occurs when a shorter-term Moving Average (MA) crosses above a longer-term moving average. Traders interpret a golden cross as a market uptrend indication.
This golden cross often has three distinct stages:
- In a downtrend, the shorter-term moving average is below the longer-term moving average.
- The shorter-term moving average now crosses over the longer-term moving average once the trend reverses.
- An uptrend starts when the shorter-term moving average is above the longer-term moving average.
The 50-day moving average is often the shorter-term average, and the 200-day moving average is the longer-term average in a golden cross. However, as long as the fundamental idea of a shorter-term average crossing over a longer-term average is maintained, golden crosses can still occur within any other time frame. It’s crucial to keep in mind the fact that higher time frame signals are typically more precise than lower time frame signals.
What is a death cross in Crypto?
The death cross, which denotes a clear downward trend in the market, is the complete opposite of the golden cross. In contrast to the golden cross, a death cross is a chart pattern that appears when a shorter-term average falls and crosses under a longer-term average. Yet again, it’s normal to use the 50-day and 200-day moving averages, respectively, as the shorter and longer-term moving averages for a death cross.
The death cross also occurs in three stages:
- While an uptrend is active, the shorter-term moving average is higher than the longer-term moving average.
- The shorter-term moving average crosses under the longer-term moving average once the trend reverses.
- When the shorter-term moving average drifts below the longer-term moving average, a downtrend then starts.
Golden cross Vs. Death cross: In a nutshell
|Point of Difference
|What does it indicate?
|Possible economic implications
|Forthcoming bull run;
Long-term bull market
|Economic disturbances;Long-term bear market
|50-day MA crosses above 200-day MA
|50-day MA crosses below 200-day MA
How do the golden and death crosses impact traders in their trading strategies?
Typically, traders will buy at a golden cross and sell at a death cross.
Different traders will handle crossover signals in different ways. For example, before entering or exiting a trade, some traders may wait for a confirmed golden or death cross. On the other hand, some traders could combine the crosses with other technical indicators as confirmation signals.
However, the golden and death crosses can be generally employed as trend-reversal indicators. For example, a trader might purchase an asset if they notice a golden cross forming in expectation of rising prices. Similar to this, a trader may sell an asset if they notice a death cross forming in anticipation of a price decline.
Are the golden cross and death cross reliable?
Golden and death crosses have both been observed to be trustworthy trading indicators. However, it’s crucial to understand your own distinct investing goals. These crosses may be a fantastic indicator for buying techniques if you are a long-term investor who prefers to hold assets. On the other hand, let’s say you want to engage in more aggressive asset trading. In such a situation, crosses are signals that can be used to identify both buying and selling opportunities, though it is advisable to support your trade with additional indicators.
There isn’t a technical indicator that can accurately predict the future. The best they can manage is to plot the historical data; none of the calculations are predictive. As a consequence, their results are not exactly perfect.
You can use the golden cross and death cross as excellent technical indicators in your trading strategy. These crossovers can result in early, late, or misleading signals, just like other indicators do.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.