Get to know the Golden Cross and Death Cross and how to use it
Golden Cross and Death Cross – When you read an analysis related to forex trading or stocks, you might find a sentence related to the Golden Cross or it could be a warning to be careful of Death Cross. So what is the meaning of golden cross and death cross which are usually considered accurate signals?
The Golden Cross is a bullet breakout pattern that will be formed because the crossing between the moving averages with a low period above the moving average of the higher period. The occurrence of the Golden Cross will indicate that the bull market is in sight.
For example: the 15-day MA moves across the 50-day MA, the 50-day MA moves to the top of the 100-day MA, and so on.
Although Golden Cross can occur when any moving average period, but there are combinations that are quite commonly used, for example as follows:
- The combination of the 50-day MA and 200-day MA is very popular to use, especially for bull breakout indicators on the stock market.
- Day traders will usually use shorter periods, for example a combination of MA-5 and MA-15 in order to detect the Golden Cross intraday breakout.Chart intervals can be narrowed or expanded from minutes to monthly.
- The Golden cross on the MACD will very often be considered better to assess an asset price movement compared to a moving average cross.
In using golden cross there are 3 things that you really need to pay attention to:
- Golden cross that will be accompanied by a high trading volume will strengthen the bullish signal.
- If the bigger the time frame chart, the stronger and longer the cross signal effect will appear. So in other words the signal that appears because of the combination of the 50-day MA and 200-day Ma will be considered better compared to the intraday combination of 5-MA and 15-MA.
- In short-term trading, usually the Golden Cross signal on the moving average will be used with an oscillator type indicator. There is help from an oscillator type indicator so you can easily track and get the most appropriate moment when you can uptrend.
Not a few trades or analysts who regularly check whether there is a golden cross on the chart or not. The purpose of its use is not as one of the triggers to buy, but to be able to better ensure market sentiment that tends to be bullish.
Death Cross is a signal at the beginning of a bearish market, will form from the moving average crossing in the low period below the higher moving average.
For example: The 15-Day MA moves to the bottom of the 50-Day MA, then the 50-Day MA passes through the bottom of the 100-Day MA and so on.
Along with the formation of Death Cross, the moving average with a higher period and randomly will automatically become the new resistance level in the upcoming bearish market. For example, MA-5 which moves past the lower MA-15 then when the price slumps the MA-15 line will turn into a new moving resistance.
When compared to Golden Cross, the signal that will be given by death cross will generally be considered weaker. For the short term the Deat Cross signal can become easier to cancel when there are other factors that will play on the market.
In addition, the Death Cross signal that is on a large timeframe will be temporarily considered. The opposite of the golden cross signal is indeed considered more valid on a larger timeframe.
USE OF DEATH CROSS AND GOLDEN CROSS
So that you can avoid mistakes when death cross or golden cross moments, you can use tools such as support levels and resistance to be able to confirm where the movement is going.
As already known, the way the indicator works will be the initial signal or an early sign of movement. While the support and resistance levels will be useful as a barrier to confirm the trend of price movements.
When the price cannot penetrate the support section, the price will return to the top and if the price cannot break through the resistance then the price will go back down. This is one of the reasons why the death cross and golden cross systems are not suitable for use in scalping systems.
The mistake that often occurs in forex trading is because it imposes too much signal on short-term trading so that when the price is reflected, an anxiety will arise because it is too afraid of being hit by a stop loss condition or it will turn further.
Therefore, to reduce errors when reading the signal, you really need to pay attention to the signs, such as support and resistance. Then because trading will be daily or swing then you need the trading power that is at the stop loss value.
The Importance of Stop Loss
If you are a daily trading or swing player, what must be emphasized is to always pay attention to the form of one-on-one candlesticks during open positions. Because this is what will make the anxiety that ends in a cut loss or loss.
What You Need to Do After Open Position
Then, what do you need to do after opening the position? First of all, you should leave the metatrader screen because the daily trading or swing definitely needs time to setup prices that will move according to predictions. If you decide to continue to be on the computer screen for hours it is likely that your psychology will be affected and depressed.
You should also not keep paying attention to the one-on-one candlestick on a small timeframe, for example H1 down. It would be better if you look at a longer period, namely H4 and above, the goal is to make the analysis more accurate.
That’s the discussion about the Death Cross and Golden Cross signals. For beginners, getting to know certain signal characteristics will be very good because it can affect the loss when trading.