Trading the Golden Cross and Death Cross Strategies

The Golden Cross and Death Cross are among the top technical analysis tools. In fact, these two powerful tools have it all to help you capitalize on market trends and improve your trading performance. Therefore, it is worthwhile to master the art of trading with these phenomenal technical analysis tools.

If you wanted to learn all about these tools, then you are on the right platform. Because we are going to help you learn all about them and transform your trading. So, let’s begin right away.

Introduction to the Golden Cross and Death Cross

There are two popular technical analysis strategies named the Golden Cross and Death Cross. These are extremely powerful and empower traders to make informed trading decisions. Traders employ these techniques to identify potential bullish or bearish trends in the market.

What do the Golden Cross and Death Cross tell traders?

The Golden Cross and Death Cross not only help traders to identify a trend, but it also tells certain other things traders such as:

• Firstly, it tells traders about an increase in volatility. Typically, you will observe increased volatility in the price of the security after the occurrence of a Golden Cross or Death Cross. This happens because traders and investors take the occurrence as a signal to buy or sell. Thus, we see a surge in volatility. 
• Secondly, it also tells traders about an increase in trading volume. Typically, you observe an increase in the trading volume of the security after the occurrence of a Golden Cross or Death Cross. This also happens because a majority of traders and investors react to their occurrence. Thus, we see a surge in the trading volume.
• Finally, the Golden Cross and Death Cross also empower traders to confirm the strength of an existing trend. As a general rule, the upward or downward trend is likely to continue when a Golden Cross appears during a bullish and a Death Cross appears during a bearish trend.  

Some key and strong aspects of these tools

So, we have already established that these tools are quite powerful. Now, let’s have a look at some of their key and strong aspects. 

1. Firstly, they are extremely easy to calculate and understand. And that’s why they are equally popular among beginners and experts.
2. Secondly, these tools also have exhibited strong historical accuracy when it comes to trend prediction. 
3. Thirdly, these are versatile tools as you can apply them to different timeframes. You get the best results irrespective of the timeframe you use.

The Golden Cross

The Golden Cross refers to a particular scenario where a short-term moving average crosses above a long-term moving average. The short-term moving average is usually the 50-day moving average. Whereas, the long-term moving average is typically the 200-day moving average. 

Traders take the occurrence of the Golden Cross as a bullish signal. This is because it indicates that the trend is likely to continue. Therefore, traders buy the particular asset and hold their long positions. Additionally, it is a versatile tool that you can apply to confirm trends in all types of securities as well as timeframes. 

Steps to follow after the occurrence of the Death Cross

As you have already understood by now that a Golden Cross is a bullish signal. However, it is always the best strategy to use another tool for confirmation. This is because of the fact that no tool or strategy guarantees success in trading. Therefore, here are a few steps you should take to avoid any catastrophe.

1. Look for the confirmation of the bullish trend and buy signal after the occurrence of the Golden Cross. For instance, you can look for bullish chart patterns or seek confirmation from other technical indicators.
2. After double-checking, enter a long position because you are good to go. 
3. As you know, financial markets may come up with a surprise at any time. Therefore, it is always advised that use a stop-loss order to prevent any adverse scenarios.
4. You should also monitor the market after opening a position. This is extremely important because you need to adjust your position in case of any new developments in the market. 
5. Finally, you should always book your profit at the right time. Always remember that booking profit at the right time is a trait of successful traders.  

The Death Cross

On the flip side, there is the Death Cross. It refers to a particular situation where a short-term moving average crosses below a long-term moving average. The short-term moving average is usually the 50-day moving average. Whereas, the long-term moving average is typically the 200-day moving average. 

Traders take the occurrence of the Death Cross as a bearish signal. This is because it indicates that the downtrend is inevitable. Therefore, traders begin to sell the particular asset and close their long positions. Just like the Golden Cross, it is also a versatile tool that you can apply to confirm trends in all types of securities as well as timeframes. 

Steps to follow after the occurrence of the Death Cross

So, the Death Cross is a bearish or sell signal. However, the best strategy here is also to use another tool for confirmation. This is because of the fact that the Death Cross doesn’t guarantee success prediction of a trend. So, here are a few steps you can follow for better decision-making. 

1. First things first. Firstly, look for the confirmation of the bearish trend on the horizon. AND never begin to sell your holding only after the occurrence of the Death Cross. For instance, you can look for bearish chart patterns or seek confirmation from other technical indicators.
2. After confirmation from two or more technical analysis tools, exit your long positions and sell your holdings.
3. Entering a short position to take advantage of the imminent downtrend in the market. 
4. As you know, financial markets may come up with a surprise at any time irrespective of long or short positions. Therefore, use a stop-loss order to prevent any adverse scenarios.
5. Don’t just You should also monitor the market after opening a position. This is extremely important because you need to adjust your position in case of any new developments in the market. 
6. Finally, you should always book your profit at the right time. Always remember that booking profit at the right time is a trait of successful traders.  

The wrap-up

The Golden Cross and Death Cross are definitely among the top technical analysis strategies. They help traders to confirm an upcoming trend in the market. However, it is important to note that there is no technical tool or strategy in trading that guarantees success. Therefore, always proceed with caution in trading and look for confirmation from any other reliable technical analysis tool.