What is Golden Cross
In technical analysis, a golden cross is used to refer to a graphical intersection of the short-term and long-term moving averages, following a specific trend. It is considered indicative of an emerging bull market.
Particularly, during a golden cross, the short-term moving average at first decreases. After that, it increases, intersecting the greater long-term moving average and continuing to move upward. This verifies that a change in the price trend and a market reversal are approaching. Finally, the short-term moving average resumes moving upward.
The opposite of a golden cross is referred to as a death cross, and it is usually indicative of a bearish market reversal. In a death cross, the short-term moving average, when intersecting the long-term moving average, moves downward instead of upward.
Usually, the golden cross is considered a more valid sign of a bullish market if the trading volume are greater and when the time span studied is longer. In other words, analyzing a chart with days as period units for the short- and long-term moving averages is typically more useful than using an hourly chart. To observe bullish trends in the long run, technical analysts frequently use 50- and 200-day moving averages as short- and long-term moving averages respectively. On the other hand, day traders usually resort to 5- and 15-hour moving averages.
As all indicators, it is vital to use the golden cross in combination with other tools and observations to get a fuller picture. Using the golden cross alone could be detrimental if the signal turns out to be false.