Death cross and golden cross: What do they mean?

Investing in crypto involves understanding its volatility. Aside from looking at price graphs, it is also important that you learn special terms like golden cross death cross that will help you understand what’s happening in your investment. 

Being a crypto holder means that you should be cautious about how the prices move. Aside from reading news reports and price predictions before betting or making transactions, refer to the graphs that show its value. It is where you’ll see if a coin is appreciating or depreciating over time. 

If you spend time analysing how crypto works, you will realise that there are several terms to know to fully grasp its concept. Among these are the golden cross and death cross which tell you more about the price trend of the coins. 

Meaning of moving average (MA) 

Before understanding what is golden cross and death cross are, you have to know the term moving average (MA). This is the line that’s plotted over the price chart which measures the coin’s average price for a certain period. It works as a trend indicator which will help you identify trading opportunities better. More often than not, this is based on a 50-day or 200-day period. 

What is a golden cross in crypto? 

Golden cross crypto or golden crossover is a chart pattern that occurs when a short-term MA (usually the 50-day MA) crosses above a long-term MA (approximately the 200-day MA). Still, this isn’t the only case when it happens as it can happen in any time frame as long as the short-term average crosses the long-term average. 

A golden cross is frequently regarded as a bullish sign. Most people are aware that MA plots the average price of an item for the time period it covers. Therefore, the short-term price movement is bearish in comparison to the long-term price action when a short-term MA is below a long-term MA.

Golden crosses may also occur during different time periods (15-minute, 1-hour, 4-hour, etc.). Those with a larger time frame are more credible than those with shorter ones.

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Three stages of a golden cross 

A golden cross goes through three different stages. It starts with a downtrend that reaches the bottom as the sales are depleted. In the second stage, a breakout and confirmation of a trend reversal occur. This is caused by the shorter MA which crosses up through the larger MA. Then, the last phase of the golden cross takes place as the uptrend continues, leading to higher prices. 

Example of a golden cross

Buyers frequently invest more money during a downtrend. The onset of a golden cross will be signalled by short-term weakness in the 50-day MA. This is because the subsequent strength often results from buyers starting to take control just as short-term sellers are drying up.

The chart levels off with buyers trying to regain control by driving prices up. The two periods cross as a result of the momentum's slow advancement through the 200-MA of the 50-day MA. Traders often become extremely vigilant when the 50-day MA crosses the 200-day MA to evaluate whether an uptrend is actually happening or whether it is just a false alarm.

The 50-day MA keeps rising in the final phase, eventually leading to overbuying.

What is a death cross crypto? 

Another important term you should learn about is death cross crypto which is the opposite of the former. When the short-term (MA) goes downward and crosses the long-term MA, it forms the death cross.

To confirm the existence of a strong, persistent trend, experts also keep an eye out for crossovers on charts with a lower time scale. The term crypto death cross always refers to a short-term MA crossing over a significant long-period MA, regardless of variations in the specific definition or the time range used.

Three phases of a death cross 

A death cross also undergoes three different phases. The first phase starts when the MA is in an uptrend and still above the long-term MA. At that point, prices start to decrease as the buying pressure reduces. 

A trend reversal happens when the short-term MA dips and crosses below the long-term MA. This works as the first signs of an upcoming bearish trend. It will keep on falling while staying below the long-term MA. When a death cross happens, traders typically exit or go short.

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Examples of a death cross 

A death cross may start with an uptrend of prices that signal the bearishness that’s about to happen. Prices begin to decline as sellers take control, and the short-term MA diverges from the long-term MA as a result.

The second part is where the downward trend starts as the short MA crosses below the long-term MA. As prices fall, there is a greater disparity between the two moving averages.

The last phase of a death cross is identified by a continued downward trend. However, the pattern may be viewed as a false indication if the negative momentum is only temporary and the stock quickly resumes its upward trend.

How they differ 

If you are to make a side by side comparison of golden cross vs death cross, you will see several notable differences between them. Some of them are:  

• Golden cross signifies upward trend while death cross shows downward trend.
• Death crosses are not exactly accurate when it comes to predicting downward trends. On the other hand, golden crosses have the ability to predict a long-term bullish trend.
• Golden cross is usually for traders who like buying while death cross is more preferred by those who love to sell.
   

What makes them similar

Aside from seeing that they are the total opposites of one another, there are also several factors that make these two quite similar. These are: 

• Both of them are confirmed with high trading volume
• Both of them confirm a trend reversal which may or may not lead to long-term changes
• Both of them have the tendency to forecast false signals 
   

How to trade them 

Different traders handle these crossover indications in different ways. Before joining or quitting a transaction, some traders may wait for a confirmed golden or death cross. Some people even combine the crosses with other technical indicators for them to decide better. 

Both the golden and death crosses can be used as trend-reversal indicators.Therefore, you may want to purchase an asset in expectation of rising prices if they notice a golden cross forming. Similarly, you may be more eager to sell an asset if you notice a death cross forming.

Being aware of this makes it easier for you to decide whether or not you should be buying or selling a coin. In fact, this strategy has been effective for many Bitcoin investors even though there were times that the predictions turned out to be false. With that, it might be best to consider several other factors aside from just checking whether or not a golden cross death cross crypto is forming. 

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Commonly asked questions 

Still got some questions about the golden cross and death cross? Here are the answers to some of the most common questions:

• What does a golden cross signify?

A golden cross is calculated when the 50-day moving average approaches the 200-day MA. With the belief that the rising trend would continue, this signals a great time to buy and invest. 

• Is it a great choice to buy during a death cross?

A death cross might indicate a good opportunity to buy as an asset goes on a bearish trend. The reason why many people buy at this point is that they believe that the value will rise in the future. It might also be because of how they think it's easier to get a return on your investment if you can buy it cheap.

• What are the limitations of a golden cross and death cross?

The golden cross could have limited predictive value for traders and may be more beneficial by being a proof of an upward trend than as a signal of a change in trend. Meanwhile, a death cross works as a confirmation of a downturn.

These are just some things that you have to learn about the golden cross and death cross. With that, you will find it easier to understand their impact on a coin’s value. More so, knowing these will make it easier for you to have a grasp of these terms that crypto investors often talk about. 

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Words: Kyra Jimenez