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This Wednesday, we have another interesting technical analysis term to explore in the crypto world. Golden Cross and Death Cross are two very interesting occurrences that help traders analyze the market sentiment using moving averages. So before we jump into the discussion head-on, itâ€™s better we introduce the concept of moving averages in crypto assets.
What is a moving average (MA)?
Moving average (MA) is the average price of specific crypto over a given period of time. It is usually an stock indicator used in technical analysis to create an average price that gets constantly updated. Moving averages can be calculated for any number of days ranging from 10 to 200 days and beyond.
Moving averages help to determine the direction of the trend and to identify resistance and support levels. An asset may be trending in a bullish or bearish direction. When the current price of a crypto is more than a particular MA, it is considered a positive or bullish signal and vice versa. Understanding MA is crucial to comprehend the mystery around the two concepts namely Golden cross and Death cross.
A golden cross occurs when a short-term MA crosses over a bigger, long-term MA towards the upside. A golden cross depicts a bullish momentum led by a price rise and a gathering upward momentum in the market.
In a golden cross, the short-term MA moves upwards much faster than the long-term MA. The prevalent market conditions force the short-term MA to cross over the long-term MA.
If we take the example of a Simple Moving Average (SMA), a 50-day SMA crossing over a 200-day SMA, which represents a definitive uptrend, forms the golden cross.
It occurs when the selling pressures are depleted, marking the end of a downtrend and the beginning of the golden cross. The short-term MA crosses over the long-term one and continues to be in an uptrend, leasing to rise in prices.
A death cross occurs when a short-term MA is in a downtrend and crosses over the long-term MA, depicting a fall in prices. The death cross is the exact opposite of the golden cross. A death cross depicts a downturn in the market or a bearish phase in the market. Traders usually enter a market or go long when a golden cross occurs.
For instance, in SMA, when the 50-day SMA is in a downtrend but still above the 200-day SMA. It crosses below the 200-day SMA, signaling the start of a downtrend.
The first phase begins when the MA is in an uptrend and still above the long-term MA. The buying pressure weakens, and the prices begin to fall. Then the short-term MA declines and crosses below the long-term MA, signaling a trend reversal. As the first signs of the bearish trend appear, the short-term MA diverges from the long-term MA. It then continues to decline while remaining below the long-term MA. Traders usually exit or go short when a death cross occurs.
It is, however, worthy to note that both the golden cross and the death cross are confirmed when trading volumes are high. Traders may also look at the MA convergence and divergence along with relative strength index (RSI) to ensure that a particular kind of cross is actually forming.
Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.