Golden Cross and Death Cross in Crypto Trading

Crypto traders regularly deal with rapid changes, leveraging diverse tools for rational and well-timed decisions. Among the indicators available to crypto traders, the golden cross as well as the death cross are rather prominent. Easy to identify on price charts, these signals are crucial in forecasting possible market shifts.

Today, we will look into the methodology of recognizing these formations, and talk about how they can be put into practice.

Golden cross 

This setup is defined by a short-term moving average (MA) exceeding the long-term MA, which tells traders about a potential start of a bullish opportunity. Typically, analysts focus on the 50-day and 200-day MAs. The pattern suggests noteworthy recent price escalation over days or weeks, signaling the initiation of a bullish trend. At the same time, there is often an increase in buying pressure during such periods, indicating a shift in market sentiment towards optimism.

To see an example, let’s analyze an instance on the BTC daily chart, seen on October 30, 2023. Since that date, Bitcoin has showcased substantial growth, registering an impressive rise of approximately 56%. As we can see, the indicator correctly showcased the beginning of a bullish trend.

Source: TradingView

Death cross

An opposing formation known as a "death cross" is a bearish technical arrangement. In this scenario, charts with moving averages are essential, but the main characteristic is the short-term MA crossing beneath the long-term MA. Unlike the golden cross, this pattern indicates a significant decline in the asset's price over the recent period, suggesting a potential market downturn. When traders observe this cross, it serves as a signal for increased caution.

Examining the practical application of this indicator, we are analyzing the APE chart. We can see the formation on August 9, 2023. Subsequently, the ApeCoin underwent a notable decline, plummeting by nearly 77%. Here, the death cross effectively operated as a sign of the bearish movement to start.

Source: TradingView

Finding the crosses on a chart

To find these patterns, traders should watch how short-term and long-term averages on a price chart interact. People usually look at the 50-day and 200-day averages, but some traders might use the 100-day average depending on their preferred timeframes. 

To see where the averages cross, just keep an eye on the points where they meet on the chart.

How do traders use the indicators?

In the sphere of crypto trade, which is often defined by inherent volatility, investors actively seek valid indicators to better navigate the hard-to-predict landscape. 

For example, they utilize the golden cross and integrate it into diverse strategies. A more straightforward way to go about it is to buy (or enter a long position) when a trader finds the pattern on a chart. This straightforward approach entails utilizing the indicator to predict the possible favorable change in the market.

Source: TradingView

Even though these indicators are used quite frequently, traders should include in their analysis other tools, too. To create a well-rounded working strategy, combining the crosses with other technical instruments is key.

Pros of golden and death crosses

When correctly found, both indicators offer significant benefits for crypto traders in many ways:

• Trend reversal signs. These indicators mean possible changes in the market, giving traders a chance to adjust their approach as necessary. 

• Simplicity. These patterns are easy to spot on price charts, giving traders a clear visual cue. They simplify making decisions quickly and decrease the complexity of technical analysis.

• Versatility. Both crosses work as versatile instruments applicable to various markets, such as stocks and forex. This universal applicability renders them highly useful for those investors who deal with several asset classes.

Limitations

We should not forget though, that if used without due care, the crosses may pose more harm than benefit, as they come with several limitations.

• Influence of multiple market conditions. They can be affected by different factors, which can cause sudden changes or false signals (or fakeouts). That is why it is a must to rely on several indicators.

• Lagging nature. Golden and death crosses signal changes already after the trend’s start. Thus, traders might miss the first price movements and possibly be too late for the trend.

• Non-foolproof nature. Although these crosses can be powerful indicators, they are not guaranteed to be always accurate. As we have mentioned, additional technical analysis tools are necessary.

What is different about using these indicators in the crypto sphere?

In cryptocurrency trading, the crosses are especially important because of the distinct features of the crypto market. 

1. Cryptocurrencies are notorious for their unpredictable price swings. In this environment, the crosses can be particularly useful, offering traders signals that indicate potential trend reversals as the quick price changes happen.

2. Cryptocurrencies often attract speculative trading. Traders who navigate the fast-paced world of crypto, golden cross and death cross offer straightforward signals that are particularly helpful.

3. Some tools for identifying cryptocurrency trends can be tricky because they have not been around as long as traditional assets. However, the crosses are useful in this situation because they only rely on moving averages. This simplicity makes them flexible, so one can use them effectively even with cryptocurrencies that do not have a lot of historical data.

4. In the Crypto World, news and psychological factors play a big role, combining these indicators with others helps traders see a bigger picture regarding the market sentiment and make smarter decisions.

5. In the crypto space, some classic indicators (e.g. earnings, dividends, etc.) are not available, using technical analysis tools becomes even more necessary. Among these tools, the golden cross and death cross gain significance, helping traders navigate the market by primarily analyzing price movements.

Are golden crosses and death crosses reliable?

How reliable these crosses really are hinges on various factors, including the state of the market, the investor sentiment, and the crypto at play. Even though the patterns have the potential to show the changes in the market trends well, it is vital for traders to recognize that they do not guarantee exact price predictions for assets. 

The optimal way to utilize the crosses involves integrating them with additional tools such as support and resistance levels, trendlines, and so forth. Employing this all-encompassing method in technical analysis enhances comprehension of market dynamics.

Conclusion

Crypto trade requires a deep understanding of a variety of tools that allow analyzing the market. The golden and death crosses hold a lot of significance in this way. Although these patterns provide useful hints about possible trend changes, it is necessary to be cautious and use them alongside other indicators.

Regardless of your experience level, effective risk management and continuous learning are key to success in any trading strategy. Adding these indicators to one’s analytical toolkit can significantly enhance their ability to navigate the crypto sphere successfully.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.