Decoding the Golden Cross: A Trader's Essential Guide to Moving Average Crossovers

In the trading market, countless strategies and tricks emerge one after another, dazzling the eyes. But ultimately, the choice of method and cycle depends on whether you want to profit quickly or grow steadily. Want to do short-term trading? Use 5-minute and 15-minute charts, watch the 7-day and 14-day exponential moving averages (EMA). Want to go long? Then look at 4-hour and daily charts, relying on the 50-day, 100-day, and 200-day moving averages (MMS). Today, we discuss the Golden Cross, a tool specially designed for long-term holders, which, if used well, can generate sustained returns on stocks, indices, and commodities futures.

▶ What exactly is the Golden Cross?

Simply put, the Golden Cross is a signal used to confirm an uptrend. It requires two moving averages: when the short-term moving average crosses above the long-term moving average from below—that moment is called the Golden Cross.

Imagine this scenario: the market is declining, sell orders are gradually losing strength, and the short-term and long-term moving averages start to converge. Suddenly, one day, the short-term moving average breaks above the long-term moving average—that’s the moment the Golden Cross appears. At this point, the market has shifted from weakness to strength, often followed by several pullbacks supported by the short-term average, then continuing upward. This situation persists until a “Death Cross” (where the moving averages cross in the opposite direction) occurs and ends the trend.

The Golden Cross is most effective in stocks and indices. If a coin or commodity frequently shows crossing signals, it’s unreliable—too many false signals will trap you in a nightmare of frequent stop-losses. The best trading signals are rare and reliable; appearing two or three times a year is a hundred times better than five or six times a month.

Key tip: Even if you are optimistic about this signal, always look for additional supporting evidence before placing an order—such as other indicators, key support levels, or fundamental analysis. Relying solely on the Golden Cross carries a high risk of failure.

▶ The basics of moving averages: you need to understand MMS

Since you want to use the Golden Cross, you must first understand its components—the calculation of moving averages.

A moving average is calculated by summing the closing prices over a certain period and then dividing by the number of days, resulting in an average value. There are several types: simple moving average (SMA), exponential moving average (EMA), weighted moving average, etc. The most common are SMA and EMA. Among them, SMA (Simple Moving Average, i.e., MMS) is the most straightforward—purely a mathematical average.

For example: the 5-day MMS is the average of the closing prices over the last 5 days. Suppose a stock’s closing prices over the last five days are 3864.7, 3836.5, 3943.1, 3952.1, and 3988.8. Adding them up and dividing by 5 gives 3917.04—that’s the point on the 5-day moving average line.

Similarly, the 200-day MMS is the average of the closing prices over the past 200 days, representing a comprehensive view of the entire year’s performance. The longer the cycle, the more it reflects the true trend and the less noise it contains.

▶ The golden configuration of the Golden Cross: 50-day and 200-day

Different traders have different preferences, but the standard setup for the Golden Cross is the 50-day and 200-day moving averages. One detail must not be overlooked: your chart’s time cycle must be daily. If you look at a 1-hour chart, then the 200-day moving average is actually calculated over 200 hours, which distorts the signal.

When the 50-day moving average crosses above the 200-day moving average from below, the market is telling you: the average performance over the past two months has surpassed that of the entire past year. This is a very strong bullish signal.

Why choose these two cycles? Because the 200-day cycle is long enough to filter out short-term noise and reflect the real trend; the 50-day cycle is short enough to quickly respond to new upward momentum. If you choose a combination like 15-day and 50-day, the signals become too frequent—several times a month, with mixed reliability. Remember: Better to miss some opportunities than to fall for false signals.

▶ Long-term trading to make big money

The Golden Cross method is best used for long-term investing. We’re not talking about short-term entries and exits but establishing a position that lasts for months or even a year.

Take the S&P 500 as an example: in July 2020, a Golden Cross appeared when the index was at 3,151.1 USD. If you started buying and holding then, over the next 18 months, the index kept climbing. It wasn’t until January 2022, when the price reached 4,430 USD and the 200-day moving average was broken, that was the ideal exit point. This operation could have earned you a profit of 1,278.9 USD—doubling your position in just over a year.

In contrast, some day traders try to use the 50-day moving average as support in short cycles, buying whenever the price approaches. In that example, they faced 14 such opportunities, with 4 stop-losses, resulting in significant losses. Short-term trading with the Golden Cross is a pseudo-demand; it’s not the intended use of this tool.

▶ Practical tips: how to avoid pitfalls

Choosing the right asset is crucial. You need assets showing long-term stable trends—the more stable the trend, the more effective the Golden Cross. Stocks and indices with a history of upward movement are most suitable.

In the S&P 500 example, after the Golden Cross appeared, smart traders didn’t go all-in immediately. They looked for more evidence: using Fibonacci retracements to predict support levels, observing how prices behaved at the 0.618 level, and checking if other support levels coincided. In late September 2020, combining these factors, they found a safer buy zone around 3,222–3,229 USD.

Although the price dipped to 3,208 USD that day, they only lost 21 USD, and the subsequent rally made up for this small loss, resulting in a big gain. This demonstrates the power of multi-factor confirmation.

▶ The opposite: Death Cross and its traps

Since there is a Golden Cross, there is also a Death Cross—when the 50-day moving average crosses below the 200-day from above, usually signaling a downtrend.

In stocks and indices, the Death Cross often means it’s time to close long positions. But it’s not the end of the world— for short sellers, the Death Cross can be good news, signaling a potential opportunity to establish short positions and profit from a prolonged decline.

However, caution: in volatile markets like forex and cryptocurrencies, the Death Cross often produces false signals. The S&P 500 has experienced instances where a Death Cross was immediately followed by a rebound. Using the Death Cross for shorting carries a higher risk compared to the Golden Cross.

▶ Honestly: there’s no perfect trading method

There’s no indicator that works 100% of the time. The Golden Cross is simple and easy to use, but relying on it alone to make money is unrealistic.

To improve success rates, you need to:

• Combine other indicators and tools to verify signals from multiple angles
• Choose assets with stable trends, and avoid highly volatile ones
• Use longer moving average cycles to ensure signal quality
• Incorporate fundamental analysis, not just technical
• Be mindful of trading costs, as long-term positions accumulate overnight financing fees and various commissions

In summary, the Golden Cross is a powerful but imperfect tool. When applied to the right assets, at the right time, with the right methodology, it can help traders profit steadily from long-term trends. But you must have patience to wait for signals, discipline to execute your plan, and not be scared by short-term fluctuations. When in a bear market, don’t rush to act when the Golden Cross appears—this is precisely when the smart money is quietly positioning.