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官方开奖结果体彩网: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 tra𝐆ding volumes generally reinforce the indicator.

Understanding Golden Crosses

The term golden cross refers to a tool used in 澳洲幸运5官方开奖结果体彩网:technical analysis. It is a 澳洲幸运5官方开奖结果体彩网:momentum indicator, which means that prices 🔥are continuously increasing—gaining momentum. It means that traders and investors have changed their outlooks to bullish rather t💛han bearish.

The indicator generally has three stages:

• The first stage requires that a 澳洲幸运5官方开奖结果体彩网: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 market signals.

Day traders commonly use smaller periods like the five-day and 15-day moving averages to trade 澳洲幸运5官方开奖结果体彩网:intra-day golden cross breakouts.ꦺ Some traders might use 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.

Prices gradually increased over time, creating an upward treꦛnd 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 formed, confirming a reversal from a downward trend to an upward one.

Notice that the price range of the candlesticks made a significant jump when the downward t🌺rend bottomed out and turned into an uptrend. Something likely occurred that changed investor and trader market sentiments at this time.

The candle bodie🌞s were large (the difference between open and close prices), and more days closed with prices much higher than opening during the first uptick after the 50-day moving average bottomed.

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官方开奖结果体彩网:bull market going forward, while a death cross signals a long-term 澳洲幸运5官方开奖结果体彩网: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官方开奖结果体彩网:support level (in the case of the golden cross) or 澳洲幸运5官方开奖结果体彩网:resistance level (in the inst💞ance🍨 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 pr♑oduce🗹s 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 used 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官方开奖结果体彩网:risk-to-reward ratio and to time your trade rather than just following the cross mindlessly.