## Why Traders Ignore the Most Effective Long-Term Trend Tool: the Golden Cross

When you start trading, the number of available indicators overwhelms you. Some promise quick signals, others adapt to 1-minute charts, and all claim to be "the best." But there is one that most beginners overlook: the **Golden Cross**. And precisely because of this, many traders fail in long-term trades.

This indicator has a feature that sets it apart: it works best the more patience you have. It’s not for scalping or intraday trading. It’s for investors who can wait months, even years, to harvest substantial gains from assets with genuine trends.

## The Secret of Moving Averages: Understanding the Golden Cross from Its Fundamentals

The **Golden Cross** is, in essence, a crossover of two simple moving averages (SMAs). When a short-term moving average crosses above a long-term one, the signal occurs. But here’s the key point many miss: this only works if you use the correct periods and the appropriate timeframe.

First, you need to understand what a moving average is. It’s not an arbitrary average. The SMA calculates the average price of an asset over a specific period. If you set Length: 5, it shows the average of the last 5 days. If you set Length: 200, you get the average over 200 days (approximately 10 months of data).

Why does this matter? Because a 200-period SMA is evaluating the asset’s behavior over nearly a year. When a short-term SMA crosses this long-term line, it’s not a random move: it reflects a genuine change in market dynamics.

## The Periods That Work: 50 and 200 Are No Coincidence

Not all periods work equally. The **traditional Golden Cross uses 50- and 200-day SMAs**, and it’s not superstition.

The 50-day SMA captures roughly the last two months of price behavior. It’s sensitive enough to detect real changes without generating false alarms from small fluctuations. The 200-day SMA, on the other hand, establishes a long-term line that is practically unmovable.

When the 50 SMA crosses above the 200 SMA, it’s saying: "In the last 2 months, this asset has surpassed its averages of the past 10 months." That’s a strong signal.

If you experiment with periods like 15 and 50, you’ll get many crosses. And here’s the problem that destroys many traders: more signals don’t mean more money. In fact, it’s the opposite. Too many signals are mostly false alarms that lead to losing trades.

## A Real Example: How the S&P 500 Generated $1,278.9 in 18 Months

Theory is useful, but numbers speak louder. Observe the **S&P 500**, one of the most predictable indices for this indicator.

The last significant **Golden Cross** occurred in July 2020, when the index was trading at **3,151.1 USD**. If you had opened a buy order at that time with 1 lot, you would have held it as the price steadily increased. The 50 SMA acted as a less precise support, but the 200 SMA was almost impenetrable: every pullback bounced off that line.

Fast forward to January 2022. The S&P 500 reached **4,430 USD** when the candles finally broke the 200 SMA support. That was the moment to close the trade.

Gains: **$1,278.9 in 18 months** with a single open position. It’s not astronomical returns, but it’s consistent and predictable. And most importantly: it didn’t require glued-to-the-screen monitoring or daily decisions.

## Why You Need Confluences: Don’t Rely on a Single Signal

Here’s the part almost everyone ignores: the Golden Cross isn’t 100% accurate. There are situations where the crossover occurs, but the market reverses almost immediately afterward. That’s called a "false signal," and it can cost you money.

The solution? Confluences. Combine the Golden Cross with other technical analysis tools.

Returning to the S&P 500 example: after the July 2020 Golden Cross, you could have added a Fibonacci retracement on recent lows and highs. The price bounced at the 0.618 retracement level, confirming the bullish trend was real. Additionally, you observed a historical resistance turned support at $3,229. That gave you three independent confluences saying "yes, enter here."

Without these confluences, many traders would have hesitated and closed their position prematurely when the market retreated to $3,208 in September. But with confluence analysis, you had confidence to keep the trade open.

## The Opposite Side: What the Death Cross Means and Why Traders Fear It (But It Shouldn’t Be Terrifying)

When the 50-day moving average crosses **below** the 200-day, you get the **Death Cross**. It’s the opposite of the Golden Cross.

Here’s the interesting part: although it sounds ominous, the Death Cross isn’t a death sentence for your investments. It’s a completely different opportunity.

In indices and stocks, which are historically bullish, a Death Cross generally means closing long buy positions. But in cryptocurrencies and Forex, where downward movements are more sustained, a Death Cross is a signal to **short** and profit from the decline.

Observe the difference: the Death Cross in the S&P 500 (in March 2022 at 4,258.6 USD) was misleading. Minutes later, the market rebounded bullish again. But the same pattern in GBPUSD produces sustained declines where short trades generate consistent profits.

Lesson: the direction of the crossover matters less than where you apply it.

## Common Mistakes: Why Your Timeframe Changes Everything

This is where most traders fail with the Golden Cross. Many analyze 1-hour charts, add a Golden Cross with 50 and 200 periods, and wonder why they get 20 false crosses per week.

Here’s what they don’t understand: if you use a 1-hour timeframe, then your 200-period moving average is calculating averages over 200 hours, not 200 days. That’s not the same at all. The 200-hour SMA covers just about 8-9 days of trading.

**The Golden Cross should ONLY be analyzed on daily or higher timeframes.** If you work with daily candles, you get a robust crossover every few months. If you work with hourly candles, you get dozens of false crosses per month.

That’s why scalpers or intraday traders shouldn’t even try to use this indicator. It’s like using a telescope to see nearby objects. The tool simply isn’t designed for that.

## Which Assets Work Best: Not All Markets Are Equal

The **Golden Cross produces better results in assets with stable and lasting trends:** stocks, stock indices, and major commodities.

Why? Because these markets tend to have clear long-term movements. When a blue-chip stock starts to rise, it usually continues rising for weeks or months. The Golden Cross perfectly captures these macro movements.

Cryptocurrencies and Forex are more volatile. You might get a Golden Cross that reverses in 2 weeks. They work, but with less precision. If you insist on using them, you need more confluences for validation.

## The Practical Guide: How to Set Up Your Analysis

1. Open your trading platform
2. Select an asset with a clear trend (stocks or indices)
3. Change the timeframe to 1 day (not lower)
4. Add the MA indicator (Moving Average) twice:
- First with period 50
- Second with period 200
5. Customize colors for easy differentiation
6. Look for where the 50 line crosses above the 200 line

That’s your entry point. Then wait patiently while the market moves in your favor.

## Real Costs Nobody Mentions

Here’s what destroys many investors when executing these long-term trades: costs.

If you keep a position open for 18 months (like in the S&P 500 example), you will pay overnight financing costs constantly. These can accumulate significantly if you’re using leverage or if your broker charges high commissions.

Before executing a Golden Cross, thoroughly research the commissions and overnight financing costs of different brokers. This can be the difference between a $1,278.9 profit and a $900 profit after costs.

## Conclusion: Patience Rewards

The **Golden Cross isn’t perfect, but it’s consistent when used correctly.** Don’t expect to make quick money with this indicator. But if you have the patience to wait months between trades and the discipline to wait for confluences before entering, you can achieve predictable and sustained gains.

The reason many traders ignore the Golden Cross is precisely because it doesn’t offer excitement. There are no 50 signals per week. No quick profits. But for those seeking to build wealth steadily through long-term trades, it’s a tool that definitely deserves your attention.