Golden Cross
GOLDEN CROSS
1. A golden cross occurs when a faster-moving average crosses a slower moving average.
2. Specifically, you need the 50-period and 200-period simple moving averages.
3. Anything other than these two periods and it is not a true golden cross.
4. The golden cross is a powerful trade signal, but this does not mean you should buy every cross of the 50-period moving average and the 200.
5. You will need to bring a higher level of sophistication to the setup, to ensure you are buying into a trade with real opportunity.
THE THREE STAGES OF A GOLDEN CROSS
1. As the downtrend in the stock market ends, the short-term 50-day moving average moves below the 200- day moving average.
2. In a crossover, when a stock recovers, the short-term moving average crosses over the long-term moving average. That’s where the term golden cross comes from, when the two average lines cross on a chart.
3. In a crossover, when a stock recovers, the short-term moving average crosses over the long-term moving average. That’s where the term golden cross comes from, when the two average lines cross on a chart.
THE THREE STAGES OF A GOLDEN CROSSPROFIT POTENTIAL OF THE GOLDEN CROSS PATTERN
A. DEATH CROSS
1. One option is to wait for a cross of the 50 back below the 200 as another selling opportunity.
2. The only issue with this approach is you are likely to give back a sizeable portion of your profits since moving averages are a lagging indicator.
B. PRIOR SUPPORT
1. What you can also do is look for areas of resistance overhead which will act as selling opportunities for longs that have been holding the stock for a long period of time.
2. A caveat to this strategy is that the stock may consolidate and push higher.
C. TRENDLINE BREAK
1. If the golden cross is real, the signal will likely generate a strong buying opportunity.
2. You can then use the first couple of reactionary lows to create an uptrend line.
3. You then hold the stock until this trendline is broken.
