‘Golden Cross’, frequently heard in financial markets, is a concept that attracts the attention of investors and is often used to predict important price movements. However, this term is not just about gold. Just two words for many investors, but the meaning behind this phenomenon, which has a huge impact on the markets, is a matter of curiosity for many people. So, what is the Golden Cross and why is it so important for investors? Let’s discover the secret behind this phenomenal concept together.
What Does Golden Cross Mean?
In its simplest form, the Golden Cross can be explained as a signal for the markets that a long-term upward trend, that is, a bull market, has arrived. The opposite of this concept, death cross, is a death cross and indicates a bear market in the long term.
Golden Cross is a term used in financial analysis and is examined under the heading of technical analysis. Technical analysis is; It can be described as a type of statistical analysis that explains the interpretation of any financial asset using price, volume and graphic data. Those who want to get more information about technical analysis can check out our article titled ‘Technical Analysis in Cryptocurrencies‘.
“What is the Golden Cross?” If we continue to answer the question, this term; It can be said that it is a bullish signal that occurs when the short-term moving average crosses the long-term moving average. This means that investors in the market are generally more buyers and prices may continue to rise. Therefore, the Golden Intersection can be taken into consideration as a potential bullish signal among investors.
As in the Death Cross analysis, the optimum time interval values in the Golden Cross analysis are 50-day short-term and 200-day long-term trend analysis. Evaluations on these time scales can help to reach the most effective result and to interpret the market in the most accurate way and take a position.
It should be underlined that not every Golden Cross occurrence may indicate bullishness. Supporting these trends with common indicators and indicators such as RSI, MOM, BB, which we will mention in the rest of our article, can enable much more accurate analysis. Although supporting the Golden Cross with all these indicators increases the accuracy of the signal, it is never possible to achieve 100% results.
How to Interpret Golden Cross Formation?
The Golden Cross formation occurs when an asset’s short-term (usually 50-day) moving average crosses above its long-term (usually 200-day) moving average. This formation is an indicator used to determine price trends in technical analysis.
The Golden Cross formation usually marks the beginning of uptrends and indicates that the price of an asset may enter an upward trend.
The interpretation of the Golden Cross formation can be as follows:
- Long-Term Trend Change: When the short-term moving average rises above the long-term moving average, it can be interpreted that the long-term trend may experience an upward change. This may indicate that the asset price may now start to move out of the downtrend and into an uptrend.
- Strong Buy Signal: Golden Cross is considered a strong buy signal. Because when the short-term moving average crosses the long-term moving average upwards, it may indicate that buyers are getting stronger in the market and prices are in an upward trend.
- Need for Confirmation: However, it is not correct to assume that the Golden Cross pattern definitely indicates that there will be a trend change. It should be evaluated together with other indicators and market conditions. Some traders prefer to use additional indicators, volume analysis and other technical patterns to confirm the Golden Cross.
- Caution: Although the Golden Cross indicates an uptrend, it may be misleading to think that it is a guaranteed buy signal. Considering the complexity of the market and unexpected events, risk management strategies and measures such as stop-loss orders are still necessary.
The Golden Cross formation can be briefly interpreted as follows. However, it is recommended to evaluate it together with other technical analysis tools and indicators rather than using it as a stand-alone indicator. In our next topic, indicators supporting Golden Cross can be found.
Indicators Supporting the Golden Cross
The Golden Cross can often be confirmed or supported by using it in conjunction with other technical indicators. These indicators can help investors base their decisions on more solid foundations. Here are some common technical indicators and indicators that can be used to support or confirm the Golden Cross:
Volume
When the Golden Cross occurs, it is important to check if there is an increase in trading volume. A high trading volume can increase the reliability of the intersection signal. Low trading volume may limit the strength of the intersection or weaken the signal.
Price Movements
Examining price movements can help identify possible resistance or support levels at the point where the Golden Cross forms. It can also be used to predict potential future price trends by considering past price movements.
Trend Indicators
Trend indicators can help determine the strength and direction of the trend in the market. So it can increase the reliability of Golden Cross.
RSI (Relative Strength Index)
The relative strength index aims to make a prediction about the short and medium-term trend by comparing the closing value of the asset in question with the previous closing values. Simply, by measuring the imbalances in the rise and fall of the price, it determines the normalization speed of these imbalances and provides buy-sell signals to the investor. Commonly used reference values are in the 30-70 band. If the reference value falls below 30, it gives a buying signal to the investor, while if it exceeds 70, it gives a sell signal.
MOM (Momentum Indicator)
It is an indicator that shows the percentage development of a financial asset or instrument in certain parities and summarizes how much it gained and lost during this period. When the indicator reaches the bottom and the price indicator starts to oscillate up from this level, it gives a ‘buy’ signal, and when the indicator is up and the price oscillates down from the top, it gives a ‘sell’ signal.
BB (Bolinger Bands)
It is a technical analysis tool developed by John Bolinger. Bolinger bands are a technical indicator used in financial analysis. This indicator is used to understand how the price movements of an asset vary within a range. Bolinger bands are created using an asset’s typical price range and standard deviation. Bolinger bands are used to identify times when prices are high or low and to identify possible price reversals. Especially when volatility increases, the bands widen, meaning the price can vary more. Conversely, when volatility decreases, the bands narrow, indicating that the price is more stable. Therefore, Bolinger bands are often used to identify overbought or oversold levels of prices.
How to Make a Golden Cross?
To create a Golden Cross, simply adding moving averages to the price chart of any asset. For this, the following steps can be followed:
- Determining Moving Averages: As a first step, short-term and long-term moving averages should be determined for the asset you want to analyze. Frequently used time frames are 50-day and 200-day moving averages, again time frames can be changed according to preference.
- Showing on the Chart: The price chart of the asset to be analyzed should be opened and the decided moving averages should be included in the chart.
- Recognizing the Golden Cross: A Golden Cross is completed when the short-term moving average (for example, 50-day) crosses the long-term moving average (for example, 200-day) from above. This indicates that the short-term trend is moving above the long-term trend, which is usually interpreted as prices entering an uptrend.
- Verification: When the Golden Cross signal is received, this signal is verified by using the indicators mentioned in this article or other indicators. Market conditions should also be taken into account at this stage.
- Trading: After confirming the Golden Cross signal, the trader can decide whether to buy an asset or not depending on his trading strategy. Since the Golden Cross is thought to signal the beginning of an uptrend, there may be a buying tendency.
