Connect with us


Not sure if the bulls are back? Here’s how the golden cross spots trend reversals



An important facet in buying and selling is to accurately determine the long-term trend. As soon as that is performed, the remainder of the steps are not very troublesome as a result of all a dealer must do is search for shopping for alternatives in an uptrend and promoting alternatives in a downtrend. 

In actuality, many merchants complicate the course of by ready for decrease ranges to purchase in a bull market and lacking a big portion of the rally. Then, when the trend reverses and the value begins falling, the similar merchants begin shopping for, which normally leads to losses.

To keep away from this pitfall, merchants can incorporate the use of key shifting common convergence patterns so as to have a greater gauge of market momentum and the path of the trend. In final week’s article, we reviewed the Demise Cross, and this week we’ll have a look at the golden cross sample. This setup may help preserve merchants at bay in a downtrend and provides them a inexperienced sign to begin shopping for when the trend turns bullish.

Let’s examine this sample and be taught how to make use of it when buying and selling.

What’s a golden cross and how does it kind?

A golden cross is a setup that indicators a potential change in a bearish downtrend. It’s shaped when a quicker interval shifting common, normally the 50-day easy shifting common, crosses above the longer-term shifting common, usually the 200-day SMA.

BTC/USD day by day chart. Supply: TradingView

In a downtrend, each the 50-day SMA and the 200-day SMA are sloping down. Nonetheless, when the value reaches a gorgeous valuation, long-term traders begin accumulating, which arrests the tempo of the decline. As extra traders begin shopping for, the trend begins to show up.

A sustained up-move leads to the 50-day SMA altering its path from right down to up. Nonetheless, the 200-day SMA is slower to reply, therefore when it’s both falling or has flattened out, the 50-day SMA rises above it, forming the golden cross.

When a golden cross types, it’s a signal that the downtrend has ended and a brand new uptrend might have begun.

Nonetheless, like each setup, the golden cross isn’t foolproof. It provides false indicators a number of instances however with just a few filters, merchants could cut back the whipsaws.

Associated: Here’s 5 methods traders can use the MACD indicator to make higher trades

A worthwhile golden cross

BTC/USD day by day chart. Supply: TradingView

Bitcoin (BTC) bottomed out at $3,858 on March 13, 2020, and the most up-to-date golden cross shaped on Might 21, 2020, when the value closed at $9,061.96. Which means, the BTC/USD pair had already moved 134% from the lows by the time the golden cross confirmed a change in trend.

Inexperienced merchants could have felt the value has run up too quick and would have waited for a deep correction to occur earlier than shopping for. Nonetheless, when a trend modifications, it not often provides a chance to purchase at a lot decrease ranges as was the case right here.

The rally by no means appeared again and it hit an all-time excessive at $64,899 on April 14, 2021, a large 616% acquire from the degree the place the golden cross shaped. This reveals that the dealer who simply purchased and held after the formation of the golden cross would have earned big returns.

Nonetheless, each golden cross doesn’t present such outsized returns and typically merchants fall sufferer to whipsaws.

A failed golden cross

Bitcoin dropped from an area excessive at $13,868.44 on June 26, 2019, to an area low at $6,430 on Dec. 18, 2019. The golden cross shaped on Feb. 18, 2020, when the pair closed at $10,188.04.

BTC/USD day by day chart. Supply: TradingView

Nonetheless, merchants who purchased after the golden cross shaped could have suffered fast losses as the pair plummeted to $3,858 just some days later. This reveals how merchants could typically get caught on the mistaken foot by simply shopping for after the golden cross.

Associated: Uncertain about shopping for the dip? This key buying and selling indicator makes it simpler

Filters can when the golden cross throws a false sign

Merchants might keep away from shopping for if the golden cross types when the 200-day SMA continues to be sloping down. They will await the 200-day SMA to flatten out or flip up earlier than shopping for as which will cut back the whipsaws.

EOS/USDT day by day chart. Supply: TradingView

For instance, EOS shaped a golden cross sample on Feb. 8, 2020 when the value was at $4.76. This value cleared the filter as the 200-day SMA had flattened out. Nonetheless, had merchants taken the commerce, it might have changed into a loss as the EOS/USDT pair topped out at $5.49 on Feb. 17, 2020, after which plunged sharply to $1.35 on March 13, 2020.

The second golden cross on Aug. 22, 2020, didn’t clear the filter as the 200-day SMA was sloping down when the sample shaped. This might have saved the bulls from getting sucked into this commerce.

The third golden cross on Dec. 12, 2020, cleared the filter however it might have hit the stop-loss because it breached the robust assist at $2.20 on Dec. 23, 2020. Lastly, the fourth golden cross that shaped on Feb. 08, 2021, turned out to be worthwhile.

The above instance reveals that when the value is caught in a variety, the golden cross doesn’t act as the ultimate indicator. Subsequently, merchants could add one other filter to purchase solely after the value breaks out of the vary. This will likely cut back the whipsaws additional and assist merchants purchase solely in uptrends.

When a cryptocurrency is in a downtrend, merchants could await the golden cross to happen earlier than beginning their purchases. This might preserve merchants out of bother in a falling market.

After the golden cross sustains and a brand new uptrend is confirmed, merchants could search for shopping for alternatives. Amongst the many potentialities, one which was highlighted in an earlier article to purchase on dips to the 20-day EMA or the 50-day SMA might come in useful.

Key takeaways

A golden cross can affirm {that a} downtrend has ended and a brand new uptrend might have begun. Till a golden cross types, long-term traders could keep away from cherry-picking as which will lead to losses in a downtrend.

Nonetheless, like each different sample, the golden cross isn’t good. It could lead to whipsaws if the coin enters a consolidation throughout the bottoming formation. Subsequently, merchants should take precautions to keep away from being sucked into bull traps.

As soon as the uptrend is established after the golden cross, merchants could search for shopping for alternatives and stick with the trend until a reversal is signaled.

The views and opinions expressed right here are solely these of the writer and don’t essentially replicate the views of Each funding and buying and selling transfer entails threat, you need to conduct your personal analysis when making a choice.

Sourced Merchandise