With the meteoric rise of Bitcoin (over 479.371% in the past 12 months at the time of writing this post), one strategy that has caught my attention is the Golden/Death Cross Strategy for trading the popular cryptocurrency.
At a high level, like many other strategies, the Golden/Death Cross relies on the crossing of moving averages. Specifically, the strategy involves a shorter term moving average crossing above or below a longer term moving average. There are multiple schools of thought when it comes to which moving averages to use, but I typically use the 200 day and 50 day moving averages for the long and short term averages.
Golden Cross - Buy Signal
The golden cross occurs when a shorter term moving average crosses above a longer term moving average. As you can see in the chart below, the 50 day moving average (the blue line) crossed above the 200 day moving average (green line) show by the gold arrow on the 4 hour BTC/US Dollar chart.
This signals shows potentially 3 things:
- Selling has slowed down
- A potential reversal from a downtrend to an uptrend
- A continuing uptrend
Once the moving averages cross, and our golden cross appears the price remains above both moving averages showing clear and continuing uptrend presenting a solid buying opportunity?.
Death Cross - Sell Signal
Conversely, the death cross is when the shorter term (50 day) moving average crosses below the longer term (200 day) moving average. Looking back at the same chart above, we can see that before the golden cross appeared, the moving averages crossed the other way illustrating a textbook death cross, shown by the red arrow in the chart below.
A death cross ☠️ can show the following:
- Buying has slowed and selling has accelerated
- A potential reversal from an uptrend to a downtrend
- A sustained downtrend
In this case, the price quickly recovers and moves above the 50 day moving average, even breaching the 200 day moving average for a few days before settling between the two moving averages and eventually leading to a golden cross. This invalidates a sustained down trend.
If we look back to September 2020 on the BTC/US dollar chart (below) a death cross with a proper down trend is more clearly shown. That said, the downtrend is slightly delayed and stronger. In this case, the indications is not as clean as the golden cross example earlier in this post but still precedes a significant downtrend.
Takeaways & Tips
- It important to be ready to act if there is not a proper uptrend/downtrend confirmation
- Look across multiple chart time frames for further confirmation
- As with any indicator, this strategy is not a silver bullet
- Consider combining this strategy along with other technical indicators to improve accuracy
Feel free to leave any questions in the comments below.