A golden cross shows a long-term bull market going forward, while a death cross indicates a long-term bear market.
The golden cross turns up when a short-term moving average crosses over a major long-term moving average to the upside and is interpreted by analysts and traders as indicating a particular ascending turn in a market. The short-term average goes up faster than the long-term one until they cross.
Here are three stages to a golden cross:
- A downtrend that ultimately ends as selling is depleted.
- The shorter moving average crosses up through the longer moving average.
- The continuing rise, hopefully, leads to higher prices.
A death cross is a downside moving average crossover indicates the death cross and is understood to show a significant downturn in a market. The death cross happens when the short-term average trends down and crosses the long-term average, going in the opposite direction of the golden cross.
Golden Cross vs Death Cross
They are basically the complete opposites of each other. The golden cross is a bullish signal, and the death cross is a bearish signal. Both relate to the strong confirmation of a long-term trend by the occurrence of a short-term moving average crossing over a significant long-term moving average.
Traders can make use of the Golden Cross to help define the best time to enter and leave the market. It can also be a tool that traders can use to help them understand when it's better to sell and when it's time to buy and hold their crypto.
Many Bitcoin traders use the strategy of following the 'golden cross' or the 'death cross' once considering a long-term investment in Bitcoin.
Golden Cross Phases
There are three main phases for the Golden Cross. The first is about an existing downtrend but is at its extreme because selling interest is being overcome by stronger buying interest.
The second phase is driven by the emergence of a new uptrend. The breakout of the new uptrend is spotted once the short-term average crosses from down to up the long-term average, making the Golden Cross.
In the last phase, the new uptrend is extended, with ongoing gains that confirm a bull market. During this phase, the Golden Cross’ two moving averages should act as support levels when corrective downside retracements appear. When both price and the 50-day average stay above the 200-day average, the bull market is considered as remaining intact.
Closing thoughts
Candlestick charts are one of the most fundamental tools for any trader or investor. They provide a visual representation of the price action for a given asset and offer the flexibility to analyze data in different timeframes.
An extensive study of candlestick charts and patterns, combined with an analytical mindset and enough practice, may eventually give traders an edge over the market. Still, most traders and investors agree that it’s also important to consider other methods, such as fundamental analysis.
