21 September 2022 | ZebPay Trade-Desk
The moving average, a stock market indicator that is commonly used for technical analysis, helps to create an always-updated average price. To better understand the Golden Cross or Death Cross, it is important to have a clear understanding of the moving mean (MA). MAs are used to identify support and resistance levels, or the direction an asset’s trend. The MA is a technical indicator that shows the average price of an asset over a given time. MA is a technical indicator that indicates whether an asset is in an upward or downward trend (positive, up, or down). MAs are useful indicators when trading Crypto charts live-time. You can set them to different periods. You can choose to have them run for 10, 20, 50 or 100 days. These periods are a great way to see market trends and help you recognize them. Different types of MAs are also used by traders. The simple moving average (SMA) is the first. It calculates the average asset price over a period divided by the total number.
This is an example: An investor might calculate the SMA for ETH by using the closing prices of ETH over the past few days.
SMA= (P1+ P2+ P3+ P4+ P5)/5
The closing price of ETH is taken from September 16th-20th 2022. The SMA for the 5-day period will be as follows:
SMA = ( 1,324.39+1,377.54 + 1,335.33+ 1,469.74 + 1,432.45) = 6939.45
Another option is the weighted-moving average, which, like its name, gives more weight recent prices. The value is therefore more reflective of recent market changes. While an exponential moving average gives more weight to the recent price, it does not reflect the rate of decline between the price at which the price was last and the price at which the price is now.
Moving averages are also known as “indicators” and are based on historical prices being “lagging behind”. MA assignments are used by traders to help them buy and sell assets. Crypto traders pay attention to the MA assignments for the 50- and 200-day timeframes.
A “Golden cross” is when a short-term and major long-term moving mean cross to the upside. A gold cross is a sign of a bullish market correction and price rise. The short-term MA moves much faster than that of the long-term MA, until market conditions force it down. Golden crosses are simple moving averages that occur when the 50 day SMA crosses over the 200-day SMA. This indicates a clear uptrend.
Three stages are usually required to form a Golden Cross.
Selling is usually the end of a downtrend, and the beginning of a golden crossing. The next stage occurs when the short-term MA crosses over the long-term MA. A sustained uptrend is the third stage, which often results in higher prices.
Although no two gold crosses are exactly the same, these three phases often mark the appearance and development of a golden cross. Let’s look closer at each phase.
Buyers take control of the downtrend during the first phase. The beginning of a golden cross is indicated by the short-term weakness in the 50-day moving mean. The resultant force is usually caused by buyers taking control and sellers losing steam. The chart shows a flattening, as buyers push prices higher in an attempt to take control. This momentum is slowly pushing the 50-day MA up to the 200-day MA, at which point they intersect. Traders are usually on high alert when the 50-day moving mean crosses the 200-day moving mean. This is to determine if there is an uptrend or if it’s a false positive. The 50-day moving mean continues to rise, which indicates its momentum. Overbought can occur, but only in short bursts.
Simply put, the Death Cross is exactly the opposite of the gold cross. A death cross can be interpreted as a retrograde signal. A downtrend is indicated when the 50-day moving mean crosses the 200 day moving average. Three phases mark a death cross.
This occurs when the short term moving average is still higher than the long-term average. The second phase features a reversal where the short-term average moves below the long-term average. The second phase is marked by a reversal, during which the short-term average moves lower than the long-term average.
No two Death Crosses look the same, except for a few specific markings. Let’s take a closer look at each phase of a death crossing. The uptrend in an asset is the first sign of a death crossing. A weakening 50 day moving average is the next sign that there may be a downtrend. The short-term MA diverges slightly from the long-term MA when prices begin to fall after the peak.
The 50-day moving mean falls below the 200 day moving average in the second phase. This is an important point because it indicates that the asset could be beginning a downtrend. As prices fall, the divergence between these MAs will be more obvious. At this point, the cross of death is more obvious. The 50-day MA is the final leg. It continues to trend downward and remains below the 200-day MA. This is a sign that a downtrend may be underway. In anticipation of further price drops, the death cross often leads to increased selling pressure. If the downtrend doesn’t continue, it could indicate a temporary momentum and prices will rise rapidly. In this case, the death cross may be considered a fake signal.
What can we draw from the Death Cross and the Golden Cross?
The two are basically opposites in the way they appear on charts and the information they show. MAs are lagging indicators so both crossovers confirm the existence of a trend reversal but not to forecast it. To better understand market conditions, they should be used together with other technical indicators.
High trading volumes are often a sign of the Death Cross and Golden Cross. Analysts can also monitor the relative strength index and moving average convergence divergence for other technical indicators. Long-term bear markets are usually indicated by death crosses, which can be seen in both crypto and stock markets. In the past, the death cross has been used to signal the onset of major economic crises such as the 1929 Black Monday stock exchange crash and 2008 financial crisis. Death crosses are not always accurate and can sometimes give false signals. There have been cases where markets bounced back from a death cross. Gold crosses, on the other hand, signal the arrival of an extended bull market. However, gold crosses may not be able to accurately predict major bull runs in the past.
Cross signals can be approached differently by different traders. Some traders wait until a Death Cross or Golden Cross is confirmed before they enter or exit a trade. Some traders may use crossovers in conjunction with other technical indicators to confirm trades. However, trend reversal signals can be used in general by using the death and golden crosses. A trader could purchase an asset if they see a gold cross form. A trader could also sell assets in anticipation of falling prices if they see a death cross. Cross-signal trading is dangerous. False signals can occur, as we have already mentioned. Before you take a position, confirm any cross-signals by comparing them with other technical indicators.
Skilled traders know how to see the larger picture and take into account multiple metrics. A gold cross might occur in one hour, but zooming out may show that there is a daily or weekly death cross. Trading volume is another important factor to consider when trading cross signals. Suddenly, a gold cross may occur in a one-hour time frame. However, zooming out to see the daily or weekly time frames might reveal that a death cross is actually occurring. When deciding whether an investment is right for them, all investors should take into account these factors and consult with a professional advisor. This report was prepared by the Company using information that it has access to, as well as information from public sources that have not been independently verified. The Company makes no representations or warranties, either express or implied, regarding the accuracy, reliability, completeness, reliability, or correctness of the information, opinions, or conclusions contained herein. This report is preliminary. The Company does not assume any obligation to revise or update the reports in response to new events or circumstances after the date of the report was made. Trading & Investments in cryptos viz. Bitcoin Cash, Ethereum, and Ethereum are highly speculative investments that can be subject to market risk. The author’s analysis is intended to be informative only and should not serve as investment advice.
Death Cross vs Golden Cross ZebPay.