Golden cross and death cross: technical signals often misinterpreted

Golden cross versus death cross. It's hard to get more dramatic vocabulary, and that's why these two signals make headlines every time they appear. Behind the staging, however, lies a simple crossing of moving averages, within the reach of any beginner. The real question is elsewhere. Do these crosses announce anything, or do they arrive after the battle?

Golden cross, death cross: definition of two crosses

The recipe is made up of two curves. On the one hand the 50-day moving average, which summarizes the recent trend, on the other hand the 200-day moving average, which embodies the underlying trend. When the 50MA passes above the 200MA, we speak of a golden cross, the bullish signal. When it passes below, here is the death cross, supposed to announce winter. Nothing more, nothing less.

One detail changes everything. A moving average only contains the past, by construction, and a 200-day average digests information weeks late. A crossing therefore does not predict anything, it confirms that a movement already well underway has ended up being seen in the slow curves. Traders talk about a lagging indicator. The market waits for no one.

June 2021, the death cross of bitcoin which announced… an ATH

Life-size case study. On June 21, 2021, bitcoin's 50MA crossed below its 200MA, the first death cross since the crash of March 2020, with the price returning to around $31,000 after the April peak. Fortune devoted an article to it the next day, recalling the disastrous reputation of the signal, and part of the financial press was already preparing the oration.

What followed took everyone by surprise. Bitcoin turns around at the end of July, continues a bullish summer, and signs a new ATH at $68,982 on November 10, 2021, less than five months after the famous death cross. As for the golden cross of September 2021, arriving after months of rebound, it began a few weeks before the summit. Both signals, taken in isolation, would have caused you to lose money in the same year. Cato's auguries could not have been worse.

Use these crossings as a private trader, without making oracles of them

The tool is not good to throw away, it is good to put back in its place. A MM50/MM200 cross describes the trend regime over the long term, and it is useful information to frame the context, choose to be more buyer or rather cautious. Making it a buy or sell trigger alone, on the other hand, is like driving while only looking at the rearview mirror. Always cross-reference it with the levels that matter, supports and resistances, volume, market structure.