Have you heard of the Golden Cross signal?
If you listen to the media, you’ll hear about the Golden Cross (like how the market is bullish when it occurs).
But is it true?
Well, that’s what you’ll learn today.
What is a Golden Cross and how does it work?
The Golden Cross is a bullish phenomenon when the 50-day moving average crosses above the 200-day moving average.
When the market is in a long-term downtrend, the 50-day moving average is below the 200-day moving average.
However, no downtrend lasts forever.
So, when a new uptrend begins, the 50-day moving average must cross above the 200-day moving average — and that’s known as the Golden Cross.
An example of a Golden Cross chart:
Pro Tip: The opposite is the Death Cross — when the 50-day moving average crosses below the 200-day moving average.
Now some of you are probably wondering:
Is there anything magical about the 50 and 200-day moving average?
There’s no magic to it.
You can use the 49-period and 199-period for all you want and it will not matter.
Because the concept is what matters (which is the short-term trend showing signs of strength against the long-term downtrend).
The moving average is only a tool to define the trend.
How NOT to trade the Golden Cross
Now I know what you’re thinking…
Let’s go long when the 50MA crosses above the 200MA and sell when it crosses below — and make a ton of money!
Well, not so fast my young padawan.
Because in a range market, the Golden Cross will cause many losses (otherwise known as a whipsaw).
Here’s an example:
Unless you know what you’re doing, I don’t suggest “blindly” trading the Golden Cross.
Instead, there are better ways to trade it and I’ll tell you more in the next section.
How to use the Golden Cross and increase your winning rate
If you’re the type of trader who always can’t seem to decide whether you should be long or short, then this trading technique is for you.
Because the Golden Cross can act as a trend filter so you can trade on the right side of the markets (and increase your winning rate).
Here’s how it works:
If the 50MA crosses above the 200MA, then you’ll look to long only.
Or if the 50MA crosses below the 200MA, then you’ll look to short only.
Here’s what I mean…
Look for long setups when the 50-day crosses above the 200-day Moving Average:
Look for short setups when the 50-day crosses below the 200-day Moving Average:
Now, don’t get me wrong.
It doesn’t mean go long immediately when the 50MA cuts above the 200MA.
Instead, it means you have the “permission” to look for long trading opportunities when the 50MA cuts above the 200MA — a big difference.
If a Golden Cross occurs, then you can look for bullish trading setup like a Flag Pattern, False Break, Triangles, etc (which I’ll cover more later).
Does it make sense?
How to use the Golden Cross and increase your winning rate — for stock trading
Earlier, the examples used were for the Forex and Futures market.
But for stocks, it’s different.
Because individual stocks are “influenced” by its respective stock index.
Yangzijiang would be affected by what STI is doing rather than S&P 500.
That’s why you get the saying…
“A rising tide lifts all boats.”
In essence, if the index is bullish, then chances are the stock will move higher.
So how do you apply the Golden Cross to stock trading?
You overlay the Golden Cross to the stock index.
If a Golden Cross occurs on the S&P 500, then it means you want to be bullish on stocks within the S&P 500 index.
But does the Golden Cross really work?
Check this out…
This shows the returns after 1 month, 2 months, 3 months, 6 months, and 1 year after the Golden Cross occurs on the S&P.
Clearly, the Golden Cross has a positive bias, and the market is likely to head higher after it occurs.
And in the next section, you’ll learn how to better time your entry when trading the Golden Cross.
Golden Cross Trading Strategy: How to better time your entry using this ONE simple technique
Now, you don’t want to go long just because you spot a Golden Cross.
Because you could be entering when the market is “overextended” — and about to reverse lower.
You can use multiple timeframes to better time your entry.
Here’s how it works:
- Identify a Golden Cross on the higher timeframe
- Look for a trading setup on the lower timeframe (like Ascending Triangle, Bull Flag, etc.)
Here’s an example:
A Golden Cross on Daily timeframe…
A Bull Flag pattern on the 4-hour timeframe…
The beauty of this method is you’ll have a better entry, tighter stop loss and a more favorable risk to reward.
But the downside is you might miss the move if can’t find a valid trading setup.
How to ride MASSIVE trends with the Golden Cross
Here’s a fact:
If you want to ride massive trends in the market, you cannot have a target profit.
Because a target profit limits your profit potential?
It’s like saying…
“Hey Mr. Market, don’t give me too much profits. I’ve had enough.”
You must trail your stop loss.
This means as the market moves in your favor, you’ll “lock in” your gains but still give your trade room to breathe — should the price moves further in your favor.
And one way to go about it is using the Golden Cross as a trailing stop loss.
If you’re in a long trade and the market moves in your favor, then you’ll hold the trade till the 50-day crosses below the 200-day Moving Average.
Here’s what I mean…
Now I’ll be honest.
A trailing stop loss is not easy to execute.
Because often, your winners will become losers as you try to ride the trend — and that’s the price you must pay.
So, here’s what you’ve learned today:
- A Golden Cross occurs when the 50-day crosses above the 200-day moving average (and vice versa for a Death Cross)
- Be careful of “blindly” trading the Golden Cross because the market can whipsaw you
- You can use the Golden Cross as a trend filter, look to buy only when the 50-day is above the 200-day moving average
- You can ride massive trends with the Golden Cross and exit your trade only when the 50-day crosses below the 200-day moving average
Now over to you…
How do you use the Golden Cross in your trading?
Leave a comment below and share your thoughts with me.
5 Tips About forex trading strategy You Can Use Today
After getting mastered Untrue crack trading it can be very substantial likelihood. You will end up wanting to enter the market when the majority are actually Phony broken in the wrong way and you may generally enter into explosive moves.
Johnathon specialises in helping traders remodel their trading with substantial chance Price Action trading solutions and proper dollars administration strategies.
WoW..This is excellent and magnificent perform Justin..Tolerance pays and i believe this trading model suits me completely, in addition the best issues in life are absolutely free and also you’re not charging something whatsoever..Thanks greatly for this..I’ve been demo-ing and appears good, i just “set it and fail to remember it” its been every week now and i am about $250 in income within the EURNZD limited trade i took about the daily, i signify i couldn’t make that Significantly ahead of by way of working day trading Until i hazard by getting a number of many orders on a single trade but swing trading only one get jeopardizing three% received me up that A lot and trailed my halt decline and locked in at the least $one hundred..February 2018 am formally adopting this trading design and its remarkably profitable..
thanks a lot of for this priceless information. i just arrived into Understanding the best way to trade forex final 7 days. I’ll a great deal enjoy your guidance any time. God bless
There’s often a disclaimer in Web-sites. But as an alternative to acquiring the standard lawful terms drafted by attorneys, we are merely gonna place this in simple English as we want to be relaxed.
I’ll like to have far more classes on price action and price movements , and an additional information regarding candlesticks formation
Once you have become profitable with your to start with strategy you could increase An increasing number of. Soon after getting to be profitable and successful Discovering the initial strategy, incorporating the 2nd, 3rd and fourth becomes a whole lot more quickly as you will be utilizing the very same base techniques.
Most traders experience like they should look for a setup each time they sit back in front of their Computer system. This is named attempting to find setups.
Of course, You will find there’s lot to understand, and There are tons of other Forex trading strategies you could try here for instance breakout trading, price flip trading and development or momentum trading, but you only have to start with a single strategy.
Reaper is an automated breakout trader that is extremely simple to use. It’s going to take a perfectly analyzed breakout strategy and forex trading candlestick strategy amplifies it with automated qualified advisor capabilities. It watches for price breakouts 24 hrs each day so you hardly ever miss out pop over here on the action because of sleep or using a true existence.
I want to begin swing trading. You have got manufactured it simpler to know and make choice. Please aid me to get started on trading
When price commences to breakout higher a sizable portion of the market get started to search for the resistance to break and will enter long trades, often setting their stop loss just on the other facet of the resistance.
– Normally coming into when nearly all the industry has become stopped out entering in the wrong direction