What Is Golden Cross?

In this article, we will be studying the topic “What Is Golden Cross?. Also, we will look at the topic’s relationship with the Golden cross, Examples of the Golden cross, Limitations of using the Golden cross, the Golden cross Trading strategy, etc.

Whenever the market price of any asset is appreciated, the golden cross represents it. That is to say, it is an appreciation indicator and not a depreciation indicator.

Meaning Of A Golden Cross

A GC is an indicator that shows the upward movement of an asset value. The Interception of a slow-moving line with a fast one brings about it. There are two distinct average movements, the 50-day, and 200-day movements.

Formation Of Golden Cross in a Trading Chart.

As we said earlier, it is the interception of a fast and slow moving average. One can also observe a GC in a linkage of 5-day and 15-day average. However, it is advisable to go for extended timings. This is because its efficiency is high.

Three Important Stages Of A Golden Cross.  

THE FIRST PHASE

It denotes the final point of the depreciation. Here, the volume between the two distinct average movements moves downwards.

THE SECOND PHASE

Here is the point for the formation of the Golden cross. Also, this happens due to the interception of the 50-day and 200-day average movement.

THE THIRD AND FINAL PHASE

Here, the appreciation or upward movement commences. Traders can enter a market for an asset, as it is beneficial.

The purple line stands for the 200-day average movement. While the yellow line stands for the 50-day average movement. The interception of the yellow line and the purple line in the ascending point creates the GC.

When we are discussing GC, we talk about an indicator for price appreciation. It may serve as a price confirmation other than an indicator. As the golden cross gives traders the tip-off to enter a trade, it is still advisable to carry out a careful study.

Can One Trust The Golden Cross Indicator?

One can actually trust a golden cross indicator. But, before you do, make sure you also carry out your own research. For instance, the golden cross made the S&P index gain up to 50% off the market trade.

Meaning Of Golden Cross Trading Strategy

A vital strategy to use comes after the formation of the golden cross. It is to enter a trade in the market. Some traders do otherwise. They prefer to make an entry before the formation of the golden cross.  

Consequently, the 100-day average movement is compatible with traders who do not engage in long-lasting trades.

On the other hand, it is still good to merge other indicators into the golden cross for more efficiency. Some of these alternative indicators include MACD, OBV, accumulation indicators, RSI, and Stochastics Oscillator.

KEYNOTE

  • The use of a golden cross is for indication of a market price appreciation.
  • At any point of interception of a stock’s short-term and long-term average movement, forms a golden cross.
  • As the golden cross is to bullish price, so also is the death cross is to bearish price.

The opposite of golden is the death cross. Apparently, the slow-moving averages cross over the fast-moving ones.

The time period of a short-term trader should be between 5-period and 15-period moving averages. Also, it can be changed from 1 minute to weeks or months. In the same vein, the long-term period requires a long time period. However, it creates a firm golden cross breakout.

Instances of a Golden Cross

This is example is not a hypothetical base. One can assume that a 50-period and 200-period of average golden cross-movement per month is better than the opposite. The application of the golden cross indicator is in MACD, OBV, accumulation indicators, RSI, Stochastics, etc. Their duty is to indicate a pleasant time for entry and exit.

Distinguishing Features Of a Golden Cross and a Death Cross

A golden cross is to a long-lasting market value appreciation, and so is a death cross to a long-lasting market value depreciation. The notable feature is, that two of them have to do with crossing over of average movement.

The interception of a short-lasting average movement against a long-lasting one moving in the uptrend defines GC. It is an indication of a market value appreciation. The death cross is an indication of a market value depreciation. When the trading volumes of any crossover are high, one can consider it.

One can say the long-term moving average is beneficial and supportive. This is particularly for the golden cross. Also, in terms of resistance regarding a death cross, level for the market from that point on until the crossover happens. Either cross can signify a trend shift, but they often use it to confirm a trend shift that has already occurred.

Hindrances of Applying to Golden Cross

The use of signals is not 100% efficient. There are several cases of false indicators and signals. GC with its high accuracy in predicting bullish trends is still at fault. Therefore, they advise traders to still carry out double-check before entering a trade.

So, to avoid any form of risk, it is important to use proper risk parameters and ratios. Also, do not be in a hurry to enter a market trade.

Knowing A Golden Cross on a Chart

At any point, you see a short-lasting average movement intercepts with a long-lasting average movement, know that it is a golden cross. Most importantly, it must be moving in an ascending form. Also, the interception of a 100-day average movement with a 50-day average movement is a golden cross. There are a couple of others, like the cross-over of 200 and 50-day average movement. At any point you observe a GC, it represents a bullish market trend.

Golden Cross vs. Death Cross: An Overview.

We can define technical analysis as the application of statistical analysis to make trading decisions. Therefore, to study stocks and markets, technical analysts employ a lot of data. Those data are made available in a chart form. The trend lines on these charts sometimes curve and cross in weird shapes, including “cup with handle,” “head and shoulders,” and “double top.” Technical traders learn to detect these common patterns and what they can mean for a stock’s or market’s future performance.

Death Cross

A death cross has to do with an indication of a market value depreciation. We can observe a death cross when a short-lasting average movement intercepts a long-lasting average movement. However, the direction is downwards.

Uses Of Golden Cross: Via Forex Investors.

As beneficial as golden cross is, many forex investors fail to utilize it. It serves a good tool for market value observation. Yet, it is underused. If forex traders can make good use of this, it will serve them well.

If you study the figure above, you will notice a currency pair that runs for 15-minute. This chart is a EUR/USD currency pair. A drop in value led to an important assist to the left side of the chart. Also, the GC contained in the stochastics validated the long buy entry. However, the second golden cross generates a high level of 1.4889.

Putting To Use, Filters and Indicators

Regardless of the potency and efficiency of GC applying other indicators will be good. Consequently, you can make much profits.

We enter at 1.3750 and set a stop loss at 1.3600, which is 150 pips lower. The wide stop is used to ensure that the position does not come to a halt at the support level. After some time, the trade finally comes together in our favor, and we profit from the use of a golden cross and a simple moving average filter. The EUR/CAD spot market appreciates as expected after bouncing off the 1.3664 support level. Figure 4 demonstrates that our trade meets our required 2-to-1 risk/reward ratio by advancing directly above our take-profit target at 1.4050 before backtracking.

Within half an hour, still focusing on AUD/USD, we could still apply the GC formation. At 1.0428, we observed the testing support.

The use of Bollinger Band® places a situation of interception of support levels and lower band. The GC in the slow stochastic oscillator is a strong buy signal confirmation (right side of the chart). Because the two confirmations (lower band and support level) are so close together, the trade entry is set at 1.0450. The stop order will be placed 50 pips away, reducing our exposure in the event that the range bound price movement breaks down through our support barrier.

An extensive buy entry in a trade becomes the out. However, it has its reward for its risk at 6:1 ratio. With the study of figure 6, the AUD/USD appreciates to 1.0757 with a trade pip of 300.

CONCLUSION

Now you know the meaning of GC, you can carry out more studies on it. Also, make sure you DYOR before enter any trade. In addition, you can combine more indicators for more efficiency.

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