Bitcoin is by far the most recognized crypto in the industry. The decentralized asset controls more than 40% of the crypto market share. No wonder it is the most talked about and traded cryptocurrency. Many investors prefer to hold Bitcoin because of its intrinsic value retention ability. Some buy and sell the cryptocurrency using certain chart patterns and trading indicators. One popular indicator that traders rely on is the Bitcoin Golden Cross which is considered a bullish chart pattern.
A Bitcoin Golden Cross is formed when a short-term moving average (MA) crosses over the long-term MA. How do you spot this chart pattern while doing technical analysis, and how does it work? This guide provides all the answers and more.
What is a golden cross?
Golden cross is a chart pattern that occurs when a short-term moving average crosses and trades above a major longer-term moving average. As one of the best trading strategies, it determines the initiation of a bullish run after a previous market downtrend or a bear market.
The 50-period (hours, days, weeks) is the most common short-term moving average used, while the 200-period is the most commonly used long-term moving average in golden cross events. However, other time frames are often used by investors while performing technical analysis of the market.
Moving averages (MAs) are among the most widely used market indicators in gold crosses. However, others, such as the simple moving average (SMA) and exponential moving average (EMA) pairs, can also be used to identify a golden cross. All these market indicators often indicate the general market sentiment. When Bitcoin price action trades above the moving average, buyers take more positions than sellers.
When does a golden cross occur?
The golden cross concept usually occurs in three main stages:
A bearish run where the short-term moving average is below the long-term MA. A market reversal causes the short-term MA to cross above the long-term MA. A sustained uptrend where the short-term MA remains above the long-term MA and creates a new price action.
Even though the golden cross concept sounds unfamiliar to many, it is a common market analysis tool. It is used while analyzing stocks and other financial markets. The technical analysis tool is now widely used in the cryptocurrency market.
How does the Golden Cross work?
Golden crosses usually precede price increases. This is why many investors consider this a bullish chart pattern to look for. However, the indicator is not bulletproof. There were also many scenarios where it did not precede a long-term uptrend.
Consequently, traders must use other market indicators to ensure the validity of the golden cross. One commonly used indicator is the Relative Strength Index (RSI) – a stochastic oscillator that measures market momentum. It does this by tracking the buying and selling pressure on three key metrics, including oversold, underbought and overbought.
Another such indicator is the moving average convergence (MACD). It provides a buy and signal chart under an underlying asset. Additionally, high trading volume during a Bitcoin Gold Cross event can act as a signal for an impending uptrend.
Examples of a golden cross
The Bitcoin Golden Cross is a huge bullish event that doesn’t happen often. However, this is what makes the Bitcoin Golden Cross so useful and when it does occur, we tend to see significant moves to the upside.
For example, a Bitcoin Golden Cross was formed on February 7, 2023. Then the 50 moving average crossed the 200 moving average. This caused the price action of Bitcoin to rise significantly from $18,994.11. Since the Bitcoin Golden Cross event took place, the cryptocurrency has risen to around $29,000.
How to see the golden cross
Identifying a Bitcoin Golden Cross is straight forward. Golden crosses occur when a short-term moving average bullishly crosses with a long-term moving average. The most popular moving averages are the 50-period and 200-period time frames. Therefore, in this example, when a 50-day MA crosses over the 200-day MA, then a Bitcoin Golden Cross event is in the process.
What to pay attention to when using Golden Cross
While the Bitcoin Golden Cross chart pattern is considered a bullish signal, false breakouts are often seen when they occur. For example, the Bitcoin Golden Cross event posted a false bullish signal in February 2022. The 50-day MA rose slightly above the 200-day MA. However, it dropped below the 200-day MA soon after.
To address this problem, traders rely on various other market indicators such as the RSI, MACD and high trading volume to support the golden cross.
Should users rely on the Golden Cross?
The market indicator is a useful market analysis tool that indicates a bullish signal. Most investors often rely on this chart pattern to spot the end of a market downtrend and bullish reversal. However, the chart pattern cannot be used in isolation to make investment decisions. This is because of its potential to post false signals. Given this, it is important to properly manage risks in the event of a bearish reversal.
Frequently Asked Questions
Does Golden Cross Work in Crypto?
A golden cross event often occurs in the crypto space, especially within the Bitcoin price. A more recent Bitcoin Golden Cross occurred on February 7, 2023. This led to a bullish uptrend – a one month high of $28,000 plus.
What is the Death Crossover for BTC?
The Bitcoin death cross is the opposite of a golden cross. This chart pattern occurs when the 50-day short-term moving average crosses over, drops below the 200-day moving average. This usually indicates a long-term downward swing in price momentum, reflecting a bear market.
To identify a death crossing in BTC price, the asset’s price often consolidates after a large uptrend. This causes the price to drop sharply, leading to a sustained bearish run. The second phase forms the death cross with a 50-day MA. It finally crossed below the 200-day MA, which served as the earlier support. Once that happens, the sales pressure increases exponentially. This leads to the third phase, where the market continues to spiral downward.
Is Golden Cross profitable?
The golden cross is one of the signals for a bullish breakout. Investors who jumped on a possible golden cross opportunity took profits. However, the crypto market is very volatile, and investors should use proper trade management. This reduces the impact of a price reversal.
Is Golden Cross a good strategy?
Golden cross is one of the best trading strategies that investors often expect. The chart pattern often acts as a precursor to the bull run.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
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