How To Use Golden Crossover Strategy? Step-By-By Guide

I wanted to share the knowledge I have gained through a decade of experience with the people willing to build a healthy stock return with less or no risk. Avoid jumping into long positions without careful consideration when encountering a Golden Cross. While this technical indicator holds significance, it should not be relied upon alone. It is crucial to gather supporting evidence before making any decisions. Explore these suggestions for utilizing Golden Crosses as inspiration for generating ideas rather than aiming solely for monetary gains.

Comparative Analysis with Other Indicators

A bull flag is a trend continuation pattern, whereas the golden crossover hints at a trend reversal. Therefore, in most cases, a bull flag shows up a while after the crossing forms. Also, a bull flag is more of a tool to help the trader in your maximize profits, as it can distinguish a strong crossover from a weak one. Traders who indulge in scalping — quick trades that use short-term price volatility — prefer using 5-period EMA and 13-period EMA lines to determine bullish crossovers. These ultra-short-term moving averages react quickly to rapid price changes. Also, the inverse of a golden cross is a death cross — a phenomenon where the short-term moving average crosses under the long-term moving average — triggering a dip.

The Technicality Behind a Golden Cross Pattern

In general, though, when looking at a chart over a larger time frame, one should expect to see that the prices are trending upward overall when a golden cross occurs. Scan for occurrences when the 50-day moving average intersects above (Golden Cross) or beneath (Death Cross) the 200-day moving average. A Golden Cross is indicative of a bullish trend, while a Death Cross signals a bearish trend. For some strategies, the golden cross is used as the entry signal and the death cross as the sell signal. This is one of the most common technical investment strategies and is employed by many investors and traders, to know when to step out of the market.

How to find golden crossover stocks?

Higher volume indicates greater market participation, further justifying the possibility of a strong bullish trend. The primary significance of a Golden Cross is the confirmation of a bullish trend. Traders often interpret this pattern as indicating that a stock will likely experience upward momentum. It is important to ensure that you opt for stocks that are actively traded and possess adequate trading volume. Stocks with a higher trading volume are usually more trustworthy when it comes to employing technical analysis strategies.

Which Is the Best Timeframe for Simple Moving Average SMA (Backtest Analysis and a GUIDE)

Since the last time the pattern appeared in the S&P 500 Index, the index has increased by more than 50%. In contrast, the death cross occurs when a short-term MA crosses under a long-term MA to the downside, indicating a bear market going forward. Both crossovers are considered more powerful when partnered with high trading volume. For example, you can calculate the 50-day moving average of a stock by adding what is golden crossover its closing prices for 50 days and then dividing the sum by 50.

Although the Golden Cross is a powerful signal, it isn’t completely helpful at forecasting trend reversals. Therefore, it should be utilized with other technical indicators and patterns to ensure its authenticity and accuracy. The chart below depicts the end of a downtrend as the 50 EMA crosses above the 200 SMA. Remember that the price has to drop below the 50 EMA while remaining above the 200 SMA (the support level).

If a corrective negative retracement happens during this phase, the Golden Cross two-moving average should serve as a level of support. As long as the 50-day moving average and the price are both below 200 days, a bull market is considered to be in place. Once you see a golden crossover on the price chart, check whether the prices are moving in any pattern.

When these two moving averages intersect, with the 50-day moving average crossing above the 200-day moving average, it signals a Golden Crossover. This bullish signal indicates a shift in the stock’s trend from bearish to bullish and can be seen as a potential buying opportunity. Traders and investors often view the Golden Crossover as confirmation that the stock’s price is likely to continue rising in the near future.

• The bulls (buyers) are getting more action and everyone is more optimistic about the potential growth of the asset in question.
• The golden cross suggests the probability of the emergence of a long-term bull market.
• It is important to ensure that you opt for stocks that are actively traded and possess adequate trading volume.
• Traders take advantage of this by simply buying a stock that just had a golden cross.

You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Our profit target criterion indicates that we will take the ATR value of the stock, multiply it by 3, and add it to the price we paid when we bought the stock. That will be our profit target and we can set up a sell limit order at that price. Stock Market Guides identifies swing trading opportunities that have a historical track record of profitability in backtests.

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Using additional indicators could also give traders the opportunity to find better entry signals also on daily bars. For example, it might be unfavourable to enter the S&P 500 if the RSI has reached overbought levels, since we know it’s a mean reverting market. And what could be a better indicator to pair with it than the stochastic oscillator? This indicator compares the closing price of an asset and its recent price moves. Once a golden crossover exists, do not immediately fall for the price breakout. Instead, you should wait for the price to come back or retrace near the area of the crossover.

The inverse of a golden crossover is a death crossover with the short-term MA crossing below the long-term MA. The most common moving averages to use together with the golden cross, are the 50-period and 200-period moving averages. These are both rather long averages, which means that they measure larger, more substantial swings that have more impact on the behaviour of the market. In general, using moving averages with longer periods will result in more reliable golden cross signals. The very same thing applies to what data is used to calculate the golden cross. The most common approach is to use daily data, since the close of the trading day  is significant to nearly all market participants.

• Have you ever wondered how some traders seem to make remarkably accurate predictions in the financial markets?
• It all depends on the market scenario and how traders have been backtesting their strategies.
• The basic golden cross strategy is to locate a crossing of moving averages corresponding to the price action.
• PXBT Trading Ltd retains exclusive rights to the PXBT brand and operates independently.
• The stocks, securities, and investment instruments mentioned herein are not recommendations under SEBI (Research Analysts) Regulations, 2014.

Finally, many analysts use complementary technical indicators to confirm the indication from a Golden Cross. Momentum indicators such as the Average Directional Index (ADX) or the Relative Strength Index (RSI) are popular choices. This is because momentum indicators are often leading, rather than lagging, indicators.

Instead, wait for the price to return or retrace near the crossover area. The purpose of this type of pullback is to wash out all the weak links before the uptrend starts. The pullback technique assumes that prices would retrace to specific support levels before continuing to rise. The value of the short-term moving average is frequently 50, while the value of the long-term moving average is normally 200 in the chart.

Conclusion: Making Profitable Trades with Golden Cross Pattern

Looking at the chart above, you can see the market bottomed out and turned to the upside at a price level substantially below where the Golden Cross occurred. The Cross pattern may provide limited predictive value for traders and be more valuable as confirmation of an uptrend, rather than as a trend change signal. Once a Golden Crossover has been identified, it is important to consider other technical indicators and factors before making any trading decisions. The volume of trading activity during the crossover can provide further confirmation of market sentiment and strength behind the upward momentum. The golden cross is a widely known chart pattern that acts as a strong signal of a bullish market. Similarly, the death cross is the opposite version that signals a bearish trend about to happen.