Traders form their strategies and build their tactics based on the methods of fundamental and technical analysis. These terms cover many different methods and indicators, among them being the golden cross and the death cross, both chart patterns in technical analysis. They were first formulated to apply to classic market trading but apply just as well to cryptocurrency markets. These chart patterns reflect the mood of the market and allow predicting the current trend in the short- and medium-term. 

Both of these patterns are based on the moving average (MA), a graphical representation of the average value of an asset over a specific time period. 

Golden Cross: The Growth Indicator

The golden cross pattern visualizes the moment when the asset’s average price for the last 50 days is higher than the similar parameter for the previous 200 days. On the chart, it looks like an intersection, visually forming a “cross.” In classic stock market trading, it is an obvious indicator of market growth and a signal to buy an asset. However, with Bitcoin (BTC), for example, this indicator works a little differently (more about this below).

Death Cross: The Decline Indicator

The death cross pattern is an inverse situation to the golden cross. The graph of a 50-day MA is gradually decreasing, crossing at some point the chart of a 200-day MA. Accordingly, the asset’s average price for the last 50 days turns out to be lower than for the last 200 days. This is considered a sign of market decline and is viewed as a signal to sell positions.

How to Use “Crosses” in the Cryptocurrency Market

There are a number of generally accepted recommendations on how exactly golden and death crosses can be used in the cryptocurrency market: 

  1. Automatic transaction closing (Stop Loss or Take Profit) occurs when reaching the minimum and maximum closest to the “cross.”
  2. The method of “crosses” can be used at other time intervals, including for very quick transactions (scalping). But it is crucial to consider that the longer the MA interval, the stronger the signal, and vice versa. 
  3. Using the “crosses” for the analysis is important on the trend market. However, during the periods of stability (flat market), their relevance is lost. 
  4. The chart patterns of “crosses” can give a lot of false signals while waiting for important news. Therefore, they are most relevant to analyze during the quieter periods of trading. 

The moving average method helps identify the underlying trend’s strength, but it is best used in conjunction with other technical analysis methods. It is also important to remember that moving averages are considered lagging indicators. This means that they give a good idea of the current price position relative to average values, but their data is often irrelevant in terms of cryptocurrency market forecasts. This is well demonstrated by the historic occurrences of “crosses” on Bitcoin (BTC) charts.

The first death cross on the BTC chart when comparing the 50-day MA and the 200-day MA could be found in April 2014, but the asset showed a growth of more than 100% after its occurrence. Since then, the “crosses” appeared eight more times, and only one of them really reflected the ongoing trend, while the others preceded an opposite movement. This is a clear illustration of why, when looking at the crypto market, this prediction model is best used in combination with other methods of technical analysis.

Author: Evgeny Tarasov