How to use Moving Average Patterns - Moving Average Cross

What is the moving average cross?

There are two types of a moving average cross: the golden cross and the death cross. Now, let’s learn what each of these are:

• Golden cross

  The Golden Cross forms when two upward-moving averages intersect, with the shorter-period moving average crossing above the longer-period moving average. For example, when MA5 crosses above MA30 and MA30 crosses above MA60.

• Death cross

  The Death Cross forms when two downward-moving averages intersect, with the shorter-period moving average crossing below the longer-period moving average. For example, when MA5 crosses below MA30 and MA30 crosses below MA60.

How to identify the golden cross and the death cross?

• Golden cross

  1. The short-term moving average crosses over the long-term moving average;
  2. All the moving averages are moving upward;
  3. It can be in a bearish or bullish trend.

• Death cross

  1. The short-term moving average crosses below the long-term moving average;
  2. All the moving averages are moving downward;
  3. It can be in a bearish or bullish trend.

Implications of MA cross

• Golden cross

  1. The “Golden Cross” in a rising trend is a sign of an upcoming price increase, making it a good time to invest in assets. This is especially true when it’s formed by short-term and medium-term moving averages, while the medium-term and long-term moving averages are aligned in a bullish pattern.

  2. The “Golden Cross” formed by short-term moving averages during a downtrend could signal a potential price rebound, therefore traders are advised to hold off on their investments temporarily. This is especially unfavorable for long investors when the “Golden Cross” is formed by medium and short moving averages and the medium-term and long-term moving averages are arranged in a bearish pattern.

  3. “Golden Crosses” occur more frequently in a volatile market where the moving averages of various time frames cross over frequently. In this scenario, the “Golden Cross” is a less reliable indicator and has limited usefulness in market analysis.

• Death cross

  The death cross is the complete opposite of a golden cross.

Application

1. MA golden cross

In the above 4-hour chart of the Gate.io BTC contract, the MA5, MA30, MA60, MA120, and MA180 moving averages are arranged in an upward trend, forming a bullish pattern. The “Golden Cross” is formed when the MA5 crosses over the MA30 and the other medium and long-term moving averages. This signals a long-term bullish wave, causing a rapid rise in BTC price from $30,000 to over $60,000, representing a 100% increase.

1. MA death cross

The above is 4-hour chart of the Gate.io BTC contract. The market is experiencing a bearish wave, in which BTC falls from $68,000 to around $28,000. MA5, MA30, MA60, MA120, MA180, arranged from the bottom to the top, are all going downward. Then the short-term MA5 successively crosses below the medium and long-term MAs such as MA30 and MA60, forming a MA death cross.

Summary

The “Golden Cross” and “Dead Cross”, which reflect the relative positions of short-term, medium-term, and long-term moving averages, provide a useful tool to determine when to buy or sell investments. These patterns are easily recognizable and the strategy is straightforward to implement. Novice traders can significantly improve their success rate by mastering this strategy.

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Disclaimer

Please note that this article is for informational purposes only and does not provide investment advice. Gate.io cannot be held responsible for any investment decisions. The information related to technical analysis, market judgment, trading skills, and traders’ sharing should not be relied upon for investment purposes. Investing involves potential risks and uncertainties and this article does not make any guarantees for returns on any investment.