In the highly volatile cryptocurrency market, technical analysis and chart patterns are some of the few tools that provide a clear image of the market trends. An in-depth understanding of the price movements helps to predict possible changes and adjust one’s investment strategies accordingly.
Our last article was dedicated to the types of hammer candlestick charts and today we will be talking about two more patterns – a death cross and a golden cross.
A death cross is a chart pattern that is most often used to determine the long-term coming market trends. This indicator is usually a sign that a bull market is changing into a bear market and, consequently, the value of the digital assets will be dropping in the near future. Apart from cryptocurrency trading, death crosses are also used by analysts for stock and commodities trading.
Let’s get straight to business and see how and when a death cross is formed and what it means for investors.
In all financial markets for all assets, death crosses are shaped at the intersection of two lines on the pricing chart – these are called the moving averages in our case. A moving average is a line showing how the average price for a certain period has been changing. In any death cross we have two of them:
If a short-term moving average goes below the long-term moving average, it’s a signal that the market’s turning bearish. Traders might want to buy digital assets at a lower price. In the picture below, you can see both moving averages on the example of Bitcoin’s value back in 2017-2018.
Both averages cover longer time periods – almost 2 and 7 months accordingly. Therefore, they don’t show some short-term price movements or trends. On the contrary, the death cross depicts the results of the market changes in the past and possible future.
This chart pattern means that the BTC 50-day moving average went lower than the 200-day moving average and the market will likely turn bearish shortly. This can be a good time for traders and investors to buy this digital asset until the value won’t be rising again.
Let’s have a look at Bitcoin’s price chart during the past year (September 2021 – July 2022) and see how the day-moving average behaved.
We marked the Bitcoin’s death cross with the black dot on the picture above. As one can see, the two lines crossed on the 14th of January 2022, and, since that time, the cryptocurrency value has been decreasing for more than half a year now with minor market corrections here and there. As of the day when the death cross pattern happened, Bitcoin’s price was $ 43.000. As of July 2022, the value of this crypto is only $22.000.
Understanding trends in Bitcoin price is vital for any trader or investor. As the first and main cryptocurrency, BTC supports the whole crypto market. Usually, when Bitcoin drops in value, the altcoins follow the same pattern.
A death cross is not the only pattern that shows data on the assets’ average price during a fixed period. A golden cross is a similar indicator but signals that the markets will be going up. In such conditions, the 200-day moving average goes up over the 50-day moving average. It means that the asset’s value will be probably increasing in the long-term future.
On the same screenshot we’ve discussed above, you can also see a golden cross pattern that appeared almost a year ago – on the 15th of September 2021. And, from what is shown in this chart, the BTC price was rising for the next two months.
Both the golden cross and death cross are essential technical tools for market analysis. These charts represent real data indicators and, based on this information, traders can make their investment decisions. One of the advantages of these crosses is that the moving averages cover a longer time period and, thus, can provide a broad image of what is going on the market.
However, one should remember that a death cross is not the only chart or instrument to build your investment strategy around it. The complex approach is the best solution here, especially if we are talking about the cryptocurrency market that is changing literally every hour. Death cross charts provide relevant information on the asset’s value but should be proven by other tools or charts, such as trading volume, for instance.
Last but not least, regardless of how precise is the data, a death cross is also considered to be a lagging indicator. The thing is that this pattern forms when the crypto or any other market has already started to change. In long-term trading, a successful trader should not only react in time to the market trends and sentiment but also foresee the coming trends. For example, if you see a death cross, it might turn out that the market has already started turning bearish and it might be too late to purchase assets. Similarly, if you see a gold cross pattern, don’t hurry up to invest everything as the market may be just recovering for a short moment and then will drop again. In both cases, double-check all the available information, charts, etc., and re-evaluate your strategy to avoid loss and maximize profit.
To sum up, the death cross pattern is definitely one of the most simple charts to understand in crypto trading. Nevertheless, if you’re rethinking your investment strategy or just considering some minor adjustments, it’s recommended to look at a few different tools for the best possible results.
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