Technical Indicators in Crypto trading: Golden cross Death Cross

Key points

  • Moving Average (MA)
  • Golden Cross
  • Death Cross
  • Golden Cross vs. Death Cross

Charles Dow, a journalist, was responsible for introducing technical analysis into traditional financial markets. The future predictions of the market or an asset are made based on past market data. The fundamental theory behind this is that market trends tend to repeat themselves. In technical analysis, technical indicators are the tools used by traders to analyze an asset.    

In the crypto market technical analysis are used by the traders to formulate an entry and exit strategy for a profitable trade. ‘Death cross’ and ‘golden cross’, both terms are associated with moving average (MA) technical indicators. 

Moving Average (MA)

It is a line on the price chart, used to calculate the average price of a crypto coin, over a given time frame. 15, 20, 30, 50, 100, and 200 days are the most common periods, used by traders to calculate moving averages. The time frame on the moving average chart can be selected by an investor based on his trading strategy and objectives.  

When two different moving averages crossover at a given point, crossover signals are formed, known as golden cross and death cross. 

Golden Cross

When short-term MA crosses over long-term MA, a golden cross occurs, depicting a bullish market. For the short-term average, a 50-day MA is used and for the long-term average, a 200-day MA is used. The basic concept behind this signal is that short-term MA crosses over long-term MA. 

There are 3 stages of the formation of the Golden cross

  • First: When the short-term MA is below long term MA. 
  • Second: When the short term MA crosses over long term MA.
  • Third: when the short-term MA remains above the long-term MA. 

Death Cross

It is poles apart from the golden cross. This chart pattern occurs when short-term MA crosses below long-term MA. It is interpreted as a bearish signal. 

There are 3 stages of formation of the Death cross

  • First: Short-term MA is higher than long-term MA.
  • Second: Short-term MA crosses below long-term MA.
  • Third: Short-term MA continues to stay below long-term MA. 

Golden Cross vs. Death Cross

The Golden Cross and Death cross are opposite to one another. Where the golden cross indicates towards a bull run, the death cross indicates towards a bear market. 

In the golden cross, the long-term MA is regarded as a support level for the market and in the death cross, the long-term MA is regarded as a level of resistance. 

Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency. 

Photo by – janjf93 on pixabay

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