The so -called Golden Cross is considered a purchase signal on the stock exchanges. It arises when the short -term moving average thwarts the long -term upwards – and can indicate a beginning upward trend. However, investors should always look at the signal in the overall market context.
• Shorter average crosses the longer average upwards
• Reference to long -term upward trend
• Entry signal or indicator to determine the long -term trend?
Death Cross & Golden Cross
A chart -technical signal, of which many investors have probably heard of, is the so -called “Death Cross” or in German also Cross of death. With this, the shorter moving average falls below the longer moving average, which indicates that a short -term correction could pass into a longer -term downward trend.
However, there is also a kind of Bullishes counterpart to the death cross: the golden cross or golden cross. With the Golden Cross, it is precisely opposite to Death Cross – here the shorter average increases over the longer average. This chart -technical signal indicates a long -term upward trend.
Different periods possible
The 50-day average and the 200-day average are often used to observe the Death Cross or the Golden Cross. Meanwhile, according to Investopedia, DayTrader usually use shorter periods such as the 5-day-gliding average and 15-day-sliding average to act intraday-golden-cross-outputs, other traders use weeks or months. The periods differ depending on the trade projects. However, when choosing the periods, it should be noted that the greater the chart period is the greater and more sustainable.
Three phases of the indicator
As Investopedia reports, the indicator usually goes through three phases. In the first phase, a downward trend reaches its low point because buyers outperform the sellers. In the second phase, the shorter moving average then crosses the longer moving average. This triggers an outbreak and confirms a downward trend reversal. The last phase then consists of a persistent upward trend after crossing, in which the moving average serve as support levels for price declines until they cross down again.
Entry signal for investors?
Some investors use the Golden Cross as an entry signal and, for example, climb the 50-day line in the chart. The 200-day line crosses into a share or index. Other traders only use the chart signal as an indicator to determine the long -term trend or to confirm a trend or signal in combination with other indicators. According to Investopedia, many short -term chart signals have a higher probability of success if the outbreak from the formation is in the direction of the long -term trend.
Nevertheless, it should be noted that all indicators are upset, i.e. only show the past development and cannot really predict the future.
Editor finance.net
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