Golden Cross Pattern Explained With Examples and Charts

This makes the golden cross signal on one index or stock open up the possibility of many more golden cross in stocks. Some traders opt to use different moving averages to indicate a Golden Cross. For example, a trader might substitute the 100-day moving average in place of the 200-day. The pattern can also be looked for on shorter time frames, such as an hourly chart.

1. “They’re perfectly valid, but people treat them all as individual trades rather than being part of a system.
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3. The channel between the 50-period MA and the 200-period MA continues to widen as the uptrend continues to rise.
4. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances.

OptionsCertain requirements must be met in order to trade options. Options transactions are often complex, and investors can rapidly lose the entire amount of their investment or more in a short period of time. Investors should consider their investment objectives forex pin bar trading strategy and risks carefully before investing in options. Refer to the Characteristics and Risks of Standardized Options before considering any options transaction. Supporting documentation for any claims, if applicable, will be furnished upon request.

By posting material on IBKR Campus, IBKR is not representing that any particular financial instrument or trading strategy is appropriate for you. On the other hand, if there isn’t much buying activity around a stock following a golden cross, it could indicate that investors are more cautious or unsure about its future prospects. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances.

Just as with the cup and handle pattern and the head and shoulders pattern, investors use the golden cross pattern to help them identify trends. While 50 days and 200 days are the typical periods for determining crossover patterns, some investors use shorter windows of time. For example, short-term traders may examine the 10-day and 50-day moving averages.

FAQs about the golden cross

A momentum indicator like the relative strength index (RSI) will confirm the breakout by rising towards the 70-band. If the RSI fails to rise back up when the golden cross forms, it's considered a divergence signal that could result in a breakdown. Sometimes you can get head fakes or false breakouts on initial golden cross patterns.

On a shorter-term basis, this can apply to Apple’s four hour chart such as the below. For high-frequency trading, the golden cross strategy or simply any strategy that utilises the crossover of moving averages can be implemented using algorithms for one’s trading system. Some may argue that a true golden cross occurs only with the 50-DMA and the 200-DMA such as the abovementioned example. However, this may only be due to the popularity of the two moving averages that reinforces them as an indication.

How do traders use the golden cross?

One method you can use is to wait for a stock that has had a long sustainable downtrend and then look for a stock that is ready to make a move higher. Suddenly, the direction of the trend changes and price begins making a move to the upside. Naturally, the 50-period SMA reacts faster to the price change as it has a greater sensitivity to the most recent price action. The chart begins with a strong downtrend, where the price action stays beneath both the 50-period and 200-period SMA.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.

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Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see Barchart's disclaimer. It helps to add other price and momentum indicators when using this trading strategy. Train your eyes to identify what is a golden cross in the stock market.

It is the opposite of a death cross, which is a bearing indicator when a long-term moving average crosses under a short-term one. The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

More In Chart Analysis

Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy. They are based on time periods of 15, 20, 30, 50, 100, and 200 days and are dependent on certain goals and objectives. Because a golden cross indicates a bullish trend, many investors hail it as a strong buy sign. Investors who have shorted stocks, essentially betting that the price will drop, may interpret this pattern as a sign that it’s time to exit their positions because a bearish trend has ended. The term Death Cross is used to describe when an investment's 50-day moving average crosses below (to the downside) the 200-day moving average. You can add momentum indicators to the chart to confirm the breakout.

You can cycle through thousands of charts and replay the data to see which golden cross setup works best for your trading style. Here we have a bullish golden cross stock pattern when the faster SMA on the chart breaks up and through the slower SMA in a bullish direction. What you can also do is look for areas of resistance overhead which will act as selling opportunities for longs that have been holding the stock for a long period of time. Typically, bag holders from higher prices will be glad to get out at break-even. The above chart of $TSLA displays a classic golden cross trading example.

While the abovementioned crossing of moving averages sound reasonably intuitive, technical analysts would highlight that there are three stages to the golden cross. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

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The 200-day moving average flattened out after slightly trending downward. In addition to indicating possible trend changes in stocks, the golden cross can also tell us something about investor sentiment in relation to a particular stock or sector. If there is an increase in buying activity around a stock after the occurrence of a golden cross, it could indicate that investors have positive feelings toward it and expect its price to rise in the future. Technical analysis is a method of analyzing financial markets by studying price and volume data over time. Analysts look for patterns in the data that indicate changes in investor sentiment or underlying fundamentals.