When we talk about the Golden Cross and Death Cross, we need to first understand what a Moving Average (MA) is.
In short, the Golden Cross and Death Cross are lines that measure the average price of crypto assets for a certain period of time. For example, MA 200 measures the average price of crypto assets over the last 200 days and MA 50 measures the average price of crypto assets over the last 50 days, then the Golden Cross and Death Cross in this case serve as support and resistance lines.
To use the Moving Average indicator, you can access indodax.com and log in with your account. After that, select one of the crypto assets you want, and click Advanced Chart. In the indicator column, you only need to look for Moving Average and click, then a chart display with the indicator will appear. For MA 200, you can click Format, then change the Length number to 200 to show the average price for the last 200 days.
Now, what exactly is the Golden Cross? The Golden Cross is a chart pattern that involves a short term moving average moving above a long term moving average. Typically, the 50-day MA is used as the short-term MA, and the 200-day MA is used as the long-term MA.
Golden Cross occurs in three phases, namely:
- The first phase, where the short-term MA is below the long-term MA during a downtrend;
- The second phase, there is a tendency to reverse direction, where the short-term MA will cut the long-term MA upwards; and
- The third phase, where the uptrend starts when the short-term MA is above the long-term MA.
In most cases, the Golden Cross is considered a bullish signal. This is because when the price of the short-term MA is higher than the price of the long-term MA, it indicates a potential shift towards trending markets. Well, here is the right time for you to make a purchase!
Then, what is Death Cross? Death Cross is basically the opposite of the Golden Cross, which is a chart pattern where the short-term MA crosses below the long-term MA. For example, the 50-day MA crosses below the 200-day MA. Thus, the Death Cross is usually considered a bearish signal.
Death Cross occurs in three phases, namely:
- The first phase, where the short-term MA is above the long-term MA during an uptrend;
- Second phase, where the trend reverses and the short-term MA crosses below the long-term MA; and
- The third phase, where the downtrend starts when the short-term MA remains below the long-term MA.
The short-term MA line crossing below the long-term MA usually indicates a bearish outlook in the market. Hence, this is the perfect time to make a sale!
As a conclusion, Golden Cross can be considered as a bullish signal, while Death Cross is a bearish signal. Both can be confirmed by the high volume of trading. Some technical analysis can also be used when looking at the context of crosses. The most common examples include the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI).
A simple trading strategy that can be used is to buy at the Golden Cross and sell at the Death Cross. However, blindly following any of the signals is usually not the best strategy. So, you have to be able to consider other factors in terms of market analysis techniques too, so you get a more accurate analysis!