There are many chart patterns in the trading world. These patterns will greatly help traders in analyzing capital markets such as forex, stocks, and others. One of them is the golden cross pattern which is a chart pattern on the price of an asset when experiencing a moving average. So, this time we will discuss what the golden cross itself is.

Golden Cross is a pattern found in stock and forex market charts. This bullish breakout pattern is formed from a crossing between a moving average that has a low period, with a moving average that has a higher period. For more information about this golden cross pattern, see the article below. Also make sure you have downloaded the GICTrade application and participate in the GIC Trading Competition with prizes of up to 3 billion rupiah!

What is the Meaning of Golden Cross?

The Golden Cross is a chart pattern that involves a short-term moving average crossing over a longer-term moving average. Typically, the 50-day MA will be used as the short-term moving average, and the 200-day MA will be used as the longer-term average. However, this is not the only way to think about the golden cross. It can occur on any time frame, and the basic idea is that the short-term average will cross over the long-term average.

Typically, this pattern occurs in three phases:

  1. The short-term MA is below the long-term MA during a downtrend.
  2. The trend is reversing, and the short-term MA will cross above the long-term MA itself.
  3. An uptrend starts where the short-term MA remains above the long-term MA.
In many cases, this golden cross can be considered a bullish signal. Because we know that moving averages measure the average price of an asset over the duration that it is plotted. In that sense, when the short-term MA is below the long-term MA, it means that the short-term price action is bearish compared to the long-term price action.
 
However, what happens when the short-term average crosses above the long-term average? The short-term average price will be higher than the long-term average price. This indicates a potential shift in the direction of the market trend that is taking place, and this is why this pattern can be considered bullish.

In the conventional interpretation, a golden cross would involve the 50-day MA crossing above the 200-day MA. However, the general idea behind this pattern is that a short-term moving average will cross above a long-term moving average. In this sense, we can also have golden crosses occur on other time frames (15-minute, 1-hour, 4-hour, etc.). However, the higher time frame signals will tend to be more reliable than the lower time frame signals.

So far, some traders have considered this pattern with what is called a Simple Moving Average (SMA). However, there is another more popular way to calculate a moving average called the Exponential Moving Average (EMA). This will use a different formula that places a higher emphasis on more recent price action.

EMAs can also be used to look for bullish and bearish crossovers, including golden crosses. Since EMAs react more quickly to recent price movements, the crossover signals they generate may be less reliable and more likely to produce false signals. However, EMA crossovers remain popular among traders as a tool to identify trend reversals.

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Golden Cross Pattern in Forex

Golden Cross can also be simply interpreted as a positive chart. Forex traders also call this condition a bullish breakout. This statistical pattern will form when the MA (moving average) with a low period crosses above the MA with a higher period itself. A simple example of this pattern is the 15-day MA moving above the 50-day MA as explained above. Then, the 50-day MA will move above the 100-day MA, and so on.

Laypeople might think that the Golden Cross or bullish breakout is the right time to make a purchase. However, in reality, the analysis cannot be that simple. This pattern will also soon be accompanied by an opposing condition, namely the Death Cross. Stock traders usually call this Death Cross pattern a bearish market. This condition can be formed when the low-period MA crosses by moving below the high-period MA. For example, the 15-day MA will move below the 50-day MA, then the 50-day MA will move below the 100-day MA, and so on.

Golden Cross Pattern in Crypto

No different from the golden cross pattern in forex, in crypto it also has the same meaning. The golden cross is a chart pattern where the average of the short-term movement will cross above the average of the long-term movement. This pattern is a bullish breakout pattern formed from a crossover involving a security's short-term moving average (such as a 15-day moving average) that will break above its long-term moving average (such as a 50-day moving average) or a resistance level.

Since long-term indicators will have more weight, this pattern will indicate a bullish market on the horizon and is reinforced by high trading volume. As a hypothetical example, a crossover of the 50- and 200-period monthly moving averages is significantly stronger and more durable than a crossover of the same 50- and 200-period moving averages on a 15-minute chart.

This pattern breakout signal can be used with various momentum oscillator indicators such as stochastics, moving average convergence divergence (MACD), and relative strength index (RSI) to track when the uptrend is overbought and oversold. This helps to find ideal entries and exits.

Golden Cross Pattern on Stocks

In moving average, traders can choose the time span they want to know about the average value of their shares. The most commonly used in trading are MA20, MA50, MA100, and MA200. That means, this moving average will measure the average price movement that occurred during the last 20 days, the last 50 days, the last 100 days, and the last 200 days.

Let's say the MA20 moves by crossing above the MA50, then this will indicate the presence of this pattern which is interpreted as a positive chart. The golden cross is an intersection between the MA with a shorter time span and the MA with a larger time span. This golden cross will reflect the direction of the ongoing trend, so when the golden cross is happening, it will indicate that the market is having a very bullish signal. Why is that? Because the average stock price in the short period will be calculated to be greater when compared to the average in the long period.

Although this pattern can occur at any Moving Average period, there are some common combinations to use. Here are some of them:
  1. A combination of the 50-day MA and the 200-day MA which is popularly used, especially as a bullish breakout indicator in the stock market, such as the S&P500 and also the IHSG.
  2. Day Traders will usually use shorter periods, such as a combination of MA-5 and MA-15 to be able to detect the breakout of the Golden Cross intraday. The chart interval can also be narrowed or widened from minutes to monthly.
  3. The Golden Cross on the MACD is often considered a better pattern for assessing the price movement of a particular asset when compared to the Moving Average crossover.

To understand it, see the chart below.

It can be seen that MA20 is cutting above MA50 and also MA100 and forming a golden cross. If you look again, after this pattern occurs, the stock price will start to come out of the sideways period and continue to move up which means it is heading towards an uptrend.

After knowing the golden cross pattern on stocks, you can fill out the trader assessment to be able to consult trading from traders with the GIC team!

How to Read the Golden Cross

Here are some examples and how to read these patterns on various capital market instruments. How to read them is:

Forex

  • On the EUR/USD chart in the following Daily timeframe chart, a Golden Cross is visible between the 50-Day MA and the 200-Day MA.
golden cross  

This Golden Cross occurred on May 23, 2017. Although the price was somewhat depressed, in general until today, EUR/USD is still experiencing a bullish signal. Looking at this example, it should be remembered that this signal indicates a breakout, not the beginning of a trend. Moreover, this pattern is based on the Moving Average which is lagging in nature. So it is not wrong if the signal will be late. However, the high accuracy of this signal will indicate the strengthening of bullish sentiment in the market. If you intend to open a sell position when the Golden Cross appears, then you should cancel that intention.

Crypto

To be able to identify when the pattern moment will occur, the method will be quite simple. You must first know what stages are in the golden cross itself. Namely, first there will be a downtrend until the graph is really at its lowest position. At that time the bearish market will start to get tired.

Next, in the second stage, there will be a Moving Average with a fairly short period of time and will move up and cut so that it has a fairly long period of time. This is a sign that at that time a price trend reversal was occurring. And finally, in the third stage. At this stage, the crypto will continue to experience a price increase or uptrend that continues until it reaches a higher point.

Stock

After understanding the various ways to read the golden cross in the capital market, we will study it in stocks. Then how do you identify an uptrend with a golden cross on your own stock? The method is no different from the methods explained previously. Here are three important phases to know:

  1. Preceded by a downtrend or sideways with a small MA position below the large MA.
  2. Then the trend will reverse and the small MA positions will start to cut the large MAs one by one.
  3. In the final stage, the share price will continue to move up until it reaches an even higher level.

The point is, in order to see a pattern from this golden cross, traders must be patient when observing and also waiting for the market trend to become bullish.

Golden Cross Strategy for Maximum Profit

In doing a trade, of course traders are looking for the most appropriate strategy to be able to generate maximum profit too. Likewise with the golden cross which also has its own strategy in achieving its profit. The strategy is:

1. Prepare Yourself for a Long Downtrend

You need to know that the golden cross settings are not all the same. This means that the way you can do it is by waiting for a crypto asset that has been in a downtrend for a long time, then followed by looking for another crypto that is ready to move up. In investing in crypto assets, there are so many declines that the signal could potentially experience a significant reversal. This signal will have the strength that the crossing that is happening after a long bearish trend to be able to get a bullish cross must be accompanied by a base period. Thus, when the stock is soaring up, you already know that there is a potential for a reversal of each movement. Look for opportunities when the crypto value is starting to rise to be able to get a safe profit.

2. Avoid Wide Moving Average Spreads

This Moving Average sometimes has a fairly wide spread value. In this case, you will see as if the MA formation looks like a cup of coffee. On the surface it will look like a very bullish signal. In fact, if you pay attention to the price action, you will find a pattern that is not good. So you should not ignore the price action, because a crypto itself can move like a parabola, which is up quickly and also down quickly.

3. Double Bottom Pattern Combination with Golden Cross

The last strategy you can try is by combining a double bottom with a golden cross pattern. The setting is, you can look for a double bottom on the chart with the provision that the second low must be below the first low. Next, you can wait for the formation of the golden cross first. The last step is to wait for the price to retest the SMA 200. You can buy when the SMA 200 retests with a stop loss position below the lowest point of the double bottom.

How to Differentiate the Golden Cross and the Death Cross

Death Cross is a downtrend signal generated by an intersection between a long-period and short-period moving average with the position of the long-period moving indicator being above the short-period. Golden Cross, which is the opposite of Death Cross, is an uptrend signal of a movement of currency exchange which is occurring when the intersection between the long-period and short-period moving averages with the position of the long-period moving indicator being below the short-period. The intersection of this moving average indicator means the intersection of the long-period moving average indicator with the short-period moving average.

In this case, the intersections used are the Exponential Moving Average (EMA) 8 and also the EMA 21. The period value can be adjusted according to personal experience as long as it can produce a better signal. When trading forex using the death cross signal and also the golden cross, then you must pay attention to several signs that can be used as a limiter to reduce the risk of error values. These signs will be needed because the signals from the golden cross and death cross have not shown very valid conditions.

The death cross and golden cross signals are indeed very easy to recognize. This happens when there is an intersection between the long-period and short-period moving averages, which means that the death cross or golden cross moment has occurred. However, in real conditions, these signals will sometimes be pseudo and also less valid so that there is a possibility that the price will go up or down again.

Related Topics

Here are some topics that have discussions related to the golden cross itself. The topics are:

What is Death Cross

Death cross in a crypto asset is a technical chart pattern that will occur when there is a potential for a major sell-off in the market, where the short-term MA (moving average) will cut the long-term MA line. For example, the most common moving averages used in this pattern are the 50-day and 200-day MAs. Where the 50-day MA line will cut down on the 200-day MA line. Therefore, this pattern is generally considered an indicator of a bearish signal. This means that market conditions will indicate an upward price trend that has reversed. When this signal has occurred, some traders or investors will tend not to make a purchase when the market is in a weakening condition, so that later the lowest point can be known.

Death Cross Example On Bitcoin

A few months ago, this death cross chart pattern appeared in the Bitcoin price movement. The emergence of this pattern has managed to make market players such as traders worried and not a few of them started selling and also leaving the Bitcoin market. When this pattern appeared, the price of Bitcoin had decreased and was also below 29,026 US dollars or equivalent to Rp413,279,444, before finally increasing again, namely above 32 thousand US dollars or equivalent to Rp455 million.

The emergence of this chart pattern has made some people restless and also not a few who have finally chosen to be able to sell and leave the Bitcoin crypto asset itself. However, of the many who decided to sell the asset, there are also several traders or investors who will take advantage of the momentum of this decline to buy it and also wait until the price returns to normal.

After knowing how the golden cross pattern works on various instruments, don't forget to apply the method and strategy in trading when you find this pattern yourself. And don't forget to include yourself in building the GIC platform together by filling out an internal survey so that GIC becomes even better. Also make sure you understand the death cross so you can distinguish between the two existing patterns. Invite your friends to trade with GIC or become IB so you can get additional income from GIC!