What Is a Golden Cross?

A golden cross is a chart pattern in which a relatively short-term moving average crosses above a long-term 澳洲幸运5开奖号码历史查询:moving average. It is a bullish breakout pattern that forms when a security's short-term moving average (such as the 50-day moving average) crosses above its long-term moving average (such as the 200-day moving average) or resistance level. The golden 🍌cross indicates the possibility of a long-term bull market emerging. High trading volumes generally reinforce the indicator.

Understanding Golden Crosses

The term golden cross refers to a tool used in 澳洲幸运5开奖号码历史查询:technical analysis. It is a 澳洲幸运5开奖号码历史查询:momentum indicator🅷, which means that prices are continuously increasing—gaining momentum. It means that traders and investors have changed their outlooks to bullish rather than bearish.

The indicator generally has three stages:

• The first stage requires that a 澳洲幸运5开奖号码历史查询:downtrend eventually bottoms out as buyers overpower sellers.
• In the second stage, the shorter moving average crosses over the larger moving average to trigger a breakout and confirms a downward trend reversal.
• The last stage is a continuing uptrend after the crossover. The moving averages act as support levels on pullbacks until they cross back down.

Moving Averages Used with Golden Crosses

The most commonly used moving averages for observing the golden cross are the 50-day- and 200-day moving averages. Longer periods generally tend to form stronger, lasting breakouts. For example, the 50-day moving average crossover up through the 200-day moving average on an index like the S&P 500 is one of the most🌜 popular bullish mark𝄹et signals.

Day traders commonly use smaller periods like the five-day and 15-day moving averages to trade 澳洲幸运5开奖号码历史查询:intra-day golden cross breakouts. Some traders might u𒊎se different periodic increments, like weeks or months, depending on their trading preferences and what♓ they believe works for them.

But when choosing different periods, it's important to understand that the larger the chart time frame, the stronger and more lasting the golden cross breakout tends to be.

Example of a Golden Cross

The image below uses a 50-day and a 200-day moving average. The 50-day moving average trended down over several trading periods, finally reaching a price level the market couldn't support. The 200-day moving average flattened out after slightly trending downward.

Priceꦗs gradually increased over time, creating an upward trend in the moving 50-day average. The trend continued, pushing the shorter-period moving average higher than the longer-period moving average. A golden cross f💃ormed, confirming a reversal from a downward trend to an upward one.

Notice that the price range of the candlesticks made a signi🦩ficant jump when the downward trend bottomed out and turned into꧙ an uptrend. Something likely occurred that changed investor and trader market sentiments at this time.

The candle bodies were large (the difference between open and close prices), and more days closed with prices much higher than opening during the first upt🦄ick after the 50-day moving average bottome𝐆d.

Golden Cross vs. Death Cross

A golden cross and a death cross are opposing indicators. The golden cross confirms a long-term 澳洲幸运5开奖号码历史查询:bull market going forward, while a death cross signals a long-term 澳洲幸运5开奖号码历史查询:bear market. Either crossover is considered more significant when accompanied by high trading volume. The short-term moving average crosses from above the long-term moving average in a death cross and crosses from below in a golden cross.

Once the crossover occurs, the long-term moving average is considered a major 澳洲幸运5开奖号码历史查询:support level (in the case of the golden cross) or 澳洲幸运5开奖号码历史查询:resistance level (in the instance of the death cross) for the market from that point forward. Either 🐼cross may appear and signal a trend 🦩change, but they more frequently occur when a trend change has already occurred.

Limitations of a Golden Cross

All indicators are lagging, which means the data used to form the charts has already occurred. As such, they indicate past performance so they are reactive rather than proactive. This means that no indicator can truly predict the future. Many times, an observed golden cross produc♓es a false signal.

Despite its apparent predictive power in forecasting prior large bull markets, golden crosses also regularly fail to manifest. Therefore, other signals and indicators (especially leading indicators) should always be uꦚsed to confirm a golden cross.

The Bottom Line

A golden cross is believed to confirm the reversal of a downward trend. The key to using this technical tool correctly—with additional filters and indicators—is to use profit targets, stop loss, and other risk management tools. Remember to maintain a favorable 澳洲幸运5开奖号码历史查询:risk-to-reward ratio and to time your trade rather than just following the cross mindlessly.