What is Golden Cross in Stocks?

  •  6 min read
  • 0
  • 02 Nov 2023
What is Golden Cross in Stocks?

Key Highlights

  • A technical chart pattern showing the potential for a significant upturn in the gold cross.

  • When a stock's short-term moving average crosses over its long-term moving average, the golden cross appears on the chart.

  • A golden cross can be compared to a death cross, indicating a downward price trend.

A golden cross is a fundamental technical indication that shows up in the market when an asset's 50-day short-term moving average rises above its 200-day long-term moving average. Traders see the occurrence of a golden cross on a chart as proof of an effective bull market.

The Golden Cross is considered the Holy Grail of chart patterns by a lot of investors. That is a very important indicator of the bull market and, therefore, has been regarded as an extremely good signal to buy. However, some analysts question whether the cross pattern is valid.

The Golden Cross is a beneficiary of the most recent evaluation opportunity. The S&P 500 index has increased by more than 50% since the last occurrence of this pattern. The death cross is a second opposite indicator. It's the inverse of the Golden Cross. The death cross occurs when the 50-day moving average of a security crosses from above to below its 200-day moving average. The death cross signals to the markets that there will be a bear market.

The phases of the Golden Cross in the stock market are as follows. If a stock's short-term moving average, say 50 days, rises above the long-term moving average, say 200 days, it appears on the technical charts as the Golden Cross in the stock. It's a sign of bullish sentiment. In other words, until it catches up with the latter, the shorter-term MA is rising faster than the longer-term MA.

  • The Golden Cross goes through three different phases. In the first phase, there is a decline, but it is nearing its end since increased purchasing interest exceeds selling interest.

  • A new rise is taking place in the second phase. When the short-term average crosses from below to above the long-term average, forming the Golden Cross, the breakout of the new uptrend is marked.

  • The new trend continues, with continuing gains confirming the bull market at the end of this phase. During this phase, if corrective downside retracement occurs, the Golden Cross two-moving average should act as a support level. The bull market is deemed to be in place as long as both the price and the 50-day moving average do not exceed 200 days.

Various uses of the golden cross are as follows.

  1. In order to make informed trading decisions, the golden cross can be an important tool. You can spot potential opportunities much sooner if you keep a close eye on this pattern in your charts instead of relying only on basic indicators such as volume and price movements.

  2. Furthermore, gold crosses may be applied together with other technical indicators. For example, encourage your trading choices by using trend lines or support and resistance levels.

  3. Thirdly, an account should be taken of any macroeconomic factors that are at play, for example, economic news. It will assist you in deciding whether or not to take advantage of all that this pattern has to offer.

  4. The Golden Cross can be used by traders who sell short in order to signal that the bear market has come to an end and it is time for them to exit their positions.

  5. Some traders will opt to use a different moving average in order to indicate the Golden Cross. For example, a trader might take the 100-day average as opposed to the 200-day. Shorter time frames, such as the hour chart, can also be used to examine this pattern.

The benefits of golden cross stocks are as follows.

1. Less risk

Since it's a periodic trend signal, the Golden Cross stock is less prone to sudden drops. As a result, it could be an investment with relatively low risk.

2. Timing

The golden cross indicates that the stock has strong upward momentum, which can be used as a signal to enter a position in a company at the right time.

3. Possibility of sustained growth

a golden cross signal that the stock is capable of sustainable growth because it shows that both short-term and long-term trends are converging in the same direction.

4. Major returns

Golden Cross stocks can give investors high returns over time because they tend to move in line with the longer-term trend.

5. Diversification

As a portfolio diversification technique, investment in golden cross stocks can be used.

The limitations of the Golden Cross are as follows.

Gold crosses were usually correct about great bull markets, but not always. It is quite possible that the Golden Cross will not be able to sustain itself if you place a long reliance on it, and there may be some short-term setbacks. Therefore, before a trade position is taken, the golden cross needs to be reinforced by similar trends in other indicators and filters.

Conclusion

Consider a stock in a current golden cross that saw an extended drop before bottoming out and rising once more to help you make better decisions when following a golden cross. It can be a strong signal of trend reversal when the stock crosses over to gold after having been through a multiannual bearish death cross. You wait until the golden cross is established so that prices can verify a long-term moving average at support levels.

FAQs on Golden Cross in Stocks

The Golden Cross is suggesting a bull market, while the Death Cross represents a bear market going forward. At the same time, when combined with high trading volumes, either crossing is regarded as more significant.

When the price reverses course immediately after the crossover and the Golden Cross fails to maintain its upward momentum, it is a misleading signal. Without considering additional supporting factors, this could result in losses for traders who rely exclusively on the Golden Cross.

The Golden Cross, can be predicted when a short-term moving average crosses over a significant long-term moving average to the upside, indicating a clear upward trend in the market, is interpreted by moving analysts and traders.

The basic principle of the Golden Cross Strategy is to move away from a position if the short-term Moving Average crosses above the Long Term Moving Average. You can help increase the profitability of the Golden Cross strategy by specifying a stop loss and profit target.

When a security's short-term moving average (like the 50-day moving average) crosses over its long-term moving average (like the 200-day moving average) or resistance level, a bullish breakout pattern known as a golden cross is created.

Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage