Golden Cross Trading – 5 Best Golden Cross Strategies
The golden cross is a technical indicator which means a faster-moving average of a security crosses above a slower moving average.
The golden cross is popular among traders and investors. The main golden cross which everybody uses is when 50 MA crosses above its 200 MA.
A golden cross can be used in different time frames. Day traders use lower time frames (5m, 10m, 15m, etc. ) and swing traders use higher time frames (6h, 12h, daily, etc.).
Whenever you use the golden cross in higher time frames, it can indicate a major trend shift toward higher prices. In fact, the golden cross can be a sign of a bullish trend.
What is the golden cross in trading?
Golden cross has three stages which are:
- When a downtrend finishes and the price finds its bottom, there is a big gap between 50 MA (faster-moving average) and 200 MA (slower moving average)
- After the candlesticks chart ranged for a while, the price is going to go higher, and 50 MA will cross above 200 MA to fill the gap.
- Then, the uptrend will begin, and 50 MA or 200 MA acts as a support for the price to reach higher levels.
Finally, the uptrend will finish when the death cross happens. The death cross is the opposite of golden cross, and it occurs when 50 MA (short-term moving average) crosses below 200 MA (long-term moving average).
In the below image we represented the S&P 500 daily chart during the 2008-2009 financial crisis.
After the death cross we saw the price went down and found its bottom, then the golden cross happened and the uptrend began. Finally, this temporary uptrend lasted until another death cross happened.
What we explained in the above sentences is a typical textbook golden cross explanation. But in reality, the Golden cross is always not a sign of an uptrend, and we will define its reasons further.
Golden cross moving averages strategies
There are many moving averages with a different formula which can affect when the golden cross is happening on a price chart.
We define three of them here, and we show their differences through images.
SMA, EMA and VWMA definitions and differences
Some traders believe your choice of MA type will affect the golden cross trading results. But we’re going to show you that success in trading the golden cross strategy doesn’t come from choosing different MAs.
Therefore, we first defined what these MAs are and what differences they have, then we compared the quality of the golden cross trading signal by them.
SMA Golden Cross
SMA means simple moving average and its formula calculation is quite easy.
If you’re closing price of the last four candles be 25.5, 26, 27.5, 28, then your average is (25.5+26+27.5+28)/4=26.75
If you continue to do this calculation for further candles, then you’ll have a line in your chart which indicates 4 SMA.
Golden cross SMA happens when 50 SMA crosses above 200 SMA.
EMA Golden Cross
EMA means exponential moving average, and for preventing any complications, we didn’t present its formula here. But you should know that the EMA emphasizes more weight on recent data and that’s the main difference with SMA.
Golden cross EMA happens when 50 EMA crosses above 200 EMA.
VWMA Golden Cross
VWMA means volume weighted moving average and we didn’t present its formula here for keeping it easy to understand. The difference between VWMA and two other MAs is that VWMA puts more weight on the trading volume of candles.
So, Golden cross VWMA happens when 50 VWMA crosses above 200 VWMA.
Comparing SMA, EMA and VWMA Golden Crosses
We wanted to analyze the golden cross signal for different charts to show you how price action affects these signals for trading.
Golden Cross in the Stock Market (Netflix Case Study)
We analyzed when the golden cross happened according to SMA, EMA, and VWMA In Netflix daily chart. In this case, the golden cross signal happened in daily EMA, SMA, and VWMA respectively.
Furthermore, we kept 50 SMA and 200 SMA lines visible on the chart, but we hid other two indicators. Instead, we drew two vertical lines which indicate when EMA and VWMA happened on this chart.
When the golden cross happens on a chart, you should wait to see the price action then open a long position.
Many novice traders jump right into a long position when they see a golden cross on a chart. But most of the time they caught up in a bull trap.
Therefore, they panic and close their position with a few percent loss.
To prevent these kinds of trades, you should draw support and resistance areas in your chart. Then wait for the price to correct and but its retracement.
In this way, you gave time to price to start its uptrend and opened a trade exactly when you made sure the trend is bullish.
The last tip, never opens a trade right after a golden cross and look for confirmation to go long.
Golden Cross in Cryptocurrency Market (Bitcoin Case Study)
In the second example, we looked at The Bitcoin daily chart to analyze different MAs golden cross.
Bitcoin was in a bear market in 2015, and after the price found its bottom and ranged for a while, new uptrend gradually began to form.
We highlighted two golden crosses in the below image, and we’re going to analyze it separately.
First Golden Cross
First, VWMA golden cross happened, and then we saw the SMA golden cross. The interesting point is the EMA golden cross didn’t happen at all.
Opening a long trade with these golden cross signals was kind of tricky. Because the main resistance area was above us and it could easily reject the price and prevent the uptrend to occur.
So the reasonable choice was to wait and see whether the price could pass the resistance area or not. Unfortunately, the price ranged for a couple of days and finally fell into the main support area.
We could open a long position at the bottom of the support area and closing it whenever a death cross happens.
Second Golden Cross
all three golden crosses happened in this example and their order was: VWMA, SMA, and EMA.
After the price retraced for the first time into the resistance area (which turned to a support area because the price was above it) you could open a long position.
You could close your trade when you saw the long wicks of those candlesticks to the upside which obviously demonstrated price rejection.
Moreover, you could open a long position after the price retraced into the main resistance area (which turned into a support area) for the second time.
If you kept your long position, you could have around 2400% profit two years later!
Golden Cross and Bullish TK Cross Comparison
The concept of golden cross exists in other indicators like the Ichimoku cloud too.
In the Ichimoku cloud, we have a bullish TK cross strategy which is similar to the golden cross and it indicates the trend shift toward upside.
Bullish Tk cross happens when Tenken which is the faster MA crosses above Kijun which is the slower MA. you can learn details of this strategy on Ichimoku cloud article.
By the way, the important tip is that bullish TK cross can give you better long entry signals than the golden cross. also, Ichimoku cloud can show you dynamic support and resistance which helps you to open a position with higher success probability.
We analyzed many charts for this comparison, and we chose oil price chart on the 4h time frame.
We represented both golden cross and bullish TK cross in the above image. As you can see the bullish TK cross gave a long entry signal sooner than the golden cross.
Moreover, by using this strategy you’re more aware of main support/resistance zones which could help you manage your risks better.
Golden Cross and moving averages Cascade strategy
when beginners start trading they usually have some difficulties to understand different time frames on charts.
Time frames help traders to focus on micro or macro price action. In other words, Day traders focus on lower time frames(5m, 15m, 30m, etc.), but swing traders or position traders focus on higher time frames (4h, 12h, 1D, etc.).
Moving averages can help you to identify price trends better through different time frames, So the golden cross or death cross come to play here.
Golden Cross On DJI Index (Case Study)
When markets trend starts to change you can see their first signs in lower time frames. Therefore, you should check moving averages cross over in lower time frames and follow their cascade effect to know whether its trend continues on higher time frames or not.
In order to learn this strategy pay attention to the below image.
The Dow Jones Industrial Average index fell sharply through the US-China trade war. but after an extensive negotiations of US and China, finally they came close to a deal and it caused the stock market to start a new bullish trend.
We explained our strategy through this new bullish trend. Also, We used faster EMAs like 8,13 and 21 which actually are Fibonacci numbers and besides that, we used slower EMAs like 50, 100 and 200 too.
If you check golden cross on different time frames, you’ll realize the first signs of a bullish trend occurred first on lower time frames like 15m.
As we represented in the above image we had golden crosses in this order: 15m, 30m, 1h, 2h, and 3h.
This uptrend is still forming and the major golden cross which should take place on