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What Is a Golden Cross and Death Cross in Crypto Trading
Golden Cross and Death Cross are two commonly used technical analysis chart patterns for crypto trading that are used to identify potential trend reversals. The Golden Cross signals a bullish trend, while the Death Cross indicates a bearish trend.
Let's explore how to spot them on a chart, how to use them in your crypto trading strategy, and why they deserve a place in your technical analysis toolkit.
What Is a Golden Cross and Death Cross
A Golden Cross occurs when the short-term moving average crosses above a long term moving average, known as a moving average crossover that suggests a shift in market sentiment from bearish to bullish.
Conversely, a Death Cross signals a bearish reversal when the short term moving average crosses below the long term moving average.
How to Spot a Golden Cross or Death Cross
Identifying a Golden Cross or Death Cross is easy with a trading platform like Flipster with robust charting tools.
Select your Cryptocurrency: Choose the cryptocurrency you want to analyze.
Open the Chart: Access the charting tool for your chosen cryptocurrency. You'll see a visual representation of its price action over time.
Add Moving Averages: Most charting tools have a built-in feature to add technical indicators. Look for "Moving Average" or "MA" in the indicator list.
Configure the First Moving Average:
Select "Moving Average" and apply it to the chart.
Choose the period for your short term moving average. Most traders will use the 50-day moving average.
Configure the Second Moving Average:
Add another "Moving Average" indicator to the chart.
This time, select a longer period for your long term moving average. Most traders will use the 200-day moving average.
Identify the Crossover: Now, observe the chart. A golden cross occurs when the 50-day moving average crosses above the 200-day moving average.
Confirming a Golden Cross
To increase the reliability of a Golden Cross signal, use other technical analysis indicators such as:
RSI and MACD: These momentum indicators can help confirm the strength of the trend reversal and optimize your entry points.
Volume: A surge in trading volume alongside the golden cross indicates strong buying interest and conviction, suggesting a genuine bullish move.
Confirming a Death Cross
To validate a Death Cross signal:
RSI and MACD: Look for these indicators to confirm weakening momentum and a potential bearish trend.
Volume: Increased volume during the crossover suggests strong selling pressure.
How to Trade with a Golden Cross
Finding a Suitable Entry Point
A confirmed golden cross can be your initial entry signal. However, don't rush in.
Wait for a pullback towards the shorter moving average (e.g., the 50-day moving average) for a potentially better entry point.
Confirm with other indicators (RSI, MACD, volume) that the bullish momentum is sustained.
Figuring Out Stop-Loss Orders
Place your stop-loss order below the long term moving average (e.g., the 200-day moving average) or a recent swing low, limiting potential losses if the trade moves against you.
Trend Following and Exit Points
Ride the bullish trend as long as the short term moving average remains above the long term moving average.
Consider using trailing stops to lock in profits and protect your gains as the price rises.
Exit the trade if the price closes below the shorter moving average, signaling a potential trend reversal or weakening momentum.
Alternatively, you can exit based on a predetermined profit target or when other indicators suggest a trend change.
How to Trade with a Death Cross
Finding a Suitable Price to Short
A confirmed death cross signals a potential bearish reversal.
Consider entering a short position (or exiting existing long positions) when the price breaks down below the longer moving average with increased volume.
Confirm with other indicators that the bearish momentum is building.
Setting Stop-Loss Orders
Place your stop-loss order above the long term moving average or a recent swing high to limit potential losses when shorting.
Trend Following and Exit Points
Stay in the short trade as long as the short term moving average remains below the long term moving average.
Consider using trailing stops to secure profits as the price declines.
Exit the short trade if the price closes above the shorter moving average, indicating a potential trend reversal or weakening bearish momentum.
You can also exit based on a profit target or when other indicators suggest a shift in sentiment.
How to Trade Cryptocurrencies on Flipster
Sign up for an account on the Flipster website or by downloading the Flipster app (Android or Apple).
Click the [Trade] tab.
Search for your preferred cryptocurrency and click on it.
Select the leverage (up to 100x).
Select either a Trigger Order or Market Order.
Enter the amount of coin you want to trade or choose a percentage of your available funds.
Once you have confirmed the details, click the [Long] or [Short] button to open a position.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.