What are Crosses?
Crosses are asset price-related technical analysis events. Two major types of cross are a Golden Cross and a Death Cross.
These specific crosses occur when a short-term moving average “crosses” a long-term moving average. The convention is to use 50-day and 200-day as the short and long term moving averages respectively.
- Crosses are asset price-related technical analysis events. Two major types of cross are a Golden Cross and a Death Cross.
- A Golden Cross occurs when the short term moving average “crosses” above the long-term moving average.
- A Death Cross occurs when the short-term moving average “crosses” below the long-term moving average.
- In some cases, the cross events signal a change in trend, but more frequently, they are more of a confirmation of a trend change that has already occurred.
Why should I care?
The short-term moving average represents the average of the most recent asset prices and hence is more tuned to the recent price trend.
A long-term moving average represents the average of asset prices over a longer period of time and hence presents a long-term price trend.
In some cases, the cross events signal a change in trend, but more frequently, they are more of a confirmation of a trend change that has already occurred.
Golden Cross
A Golden Cross occurs when the short term moving average “crosses” above the long-term moving average.
When this occurs, the implication is that the asset price is rising faster more recently compared to over a longer-term, and is hence a sign of an upward trend in the market.
There is also the possibility of a Golden Cross when the short-term moving average is falling, but at a slower rate than the long-term moving average. This would indicate a slowing of a downward trend and a signal of a possible upturn.
Death Cross
A Death Cross occurs when the short-term moving average “crosses” below the long-term moving average.
When this occurs, the implication is that the asset price is falling faster more recently compared to over a longer-term, and is hence a sign of a downward trend in the market.
There is also the possibility of a Death Cross when the short term moving average is rising, but at a slower rate than the long term moving average. This would indicate a slowing of an upward trend and a signal of a possible downturn.
Example
The below chart shows the closing price and moving averages for Apple (AAPL US) since the start of 2020. A Death Cross event is highlighted in February 2020 and a Golden Cross event in July 2021.
In both cases, it’s clear that the change in trend has already occurred, as shown by the arrows, but the crosses should be taken as strong signals of this change, along with the fact that the trend that they confirmed continued for a long period of time after each cross.
