Golden cross

A golden cross is the moment a short-term moving average crosses above a long-term one. The standard pair is the 50-day and the 200-day simple moving average on the daily chart.

The 200-day average changes slowly, so the cross cannot happen on a single strong day. Price has to rise for weeks before the 50-day average catches up with it. That is why the signal is treated as a change of trend, not as a short-term bounce.

• The decline ends – selling slows down, price stops making new lows, and the 50-day average flattens below the 200-day.
• The cross – price has been rising long enough for the 50-day average to move above the 200-day.
• The follow-through – price stays above both averages, and the 200-day average itself turns up. Pullbacks often stop near one of the two averages.

On Charts the MA Cross indicator plots both averages and marks each cross. A single moving average added twice does the same job.

• Open the daily chart and add two moving averages with lengths 50 and 200.
• Look for the place where the 50 line passes from below the 200 line to above it.
• Check the slope of the 200 line. A cross with a flat or rising 200-day average gets more weight than one where it is still falling steeply.
• Check where price is. If it is already far above both lines, most of the first move is behind.

The signal is slow by design. It suits position trades that last weeks or months, not intraday trading.

• Direction – long only. The cross is a filter for the trend, so many traders use it to decide which side to trade, not when.
• Entry – on the cross itself, or on the first pullback toward the 50-day average after it. The pullback gives a closer stop.
• Stop – below the 200-day average or below the last swing low before the cross.
• Exit – when price closes below the 200-day average, or when the opposite signal, a death cross, appears.

The two signals are mirror images. A golden cross is the 50-day average crossing above the 200-day and is read as bullish. A death cross is the 50-day crossing below the 200-day and is read as bearish.

Both are lagging: they confirm a move that has already started. In a market that moves sideways the averages cross back and forth, and neither signal says much.

• Treating it as a forecast – the cross describes what price has already done over the last 50 and 200 days.
• Buying far above the averages – by the time of the cross price is often well off the low, and a pullback is normal.
• Using it in a range – without a trend the averages tangle and give a series of false crosses.
• Ignoring the timeframe – a cross of 50 and 200 periods on a 5-minute chart is a different, much weaker signal than on the daily chart.