Trading Strategy

Death Cross

A death cross is a technical indicator which is opposite to Golden Cross. It is based on moving average of different time frame. It considered as one of the most significant technical trading indicators of a bear market. It is almost universally recognized across all investing markets, including stocks, futures and Forex trading.

The death cross helps us to identify low-price entry points into the market with the help of some technical indicators (Stochastic, MACD, and RSI). This trading pattern is used by traders to identify the short term as well as long-term market trend. Mostly positional traders or swing traders use this technical indicator to identify the market trend.

Trading Strategy with Death Crossover

Death Crossover is generally used by traders in 2 different time frames.

  1.  15-day moving average with 50-day moving average:

Short term traders mostly use 15-day moving average with a 50-day moving average. When 15-day moving average falls below 50-day moving average it forms negative momentum or bearish trend.

OR

50-day moving average with 100-day moving average:

Short term traders also use 50-day moving average with the 100-day moving average. When 50-day moving average falls below 100-day moving average it forms negative momentum or bearish trend.

Entry Point

15 DMA falls below 50 DMA = SELL

Stop Loss

The highest point of the pattern

Target Price

At the immediate support level.

Note: Use trailing stop loss along with stop loss to secure your profit.

2.  50-day moving average with 200-day moving average

Long-term or positional traders often use 50-day moving average with the 200-day moving average. When 50 day moving average falls below 200-day moving average it indicates the strong bearish trend for longer time horizon.

Note: It is believed that the larger the chart time frame, the stronger and long lasting the death cross breakout tend.

Entry Point

50 DMA falls below 200 DMA = SELL

Stop Loss

At the highest point of the pattern

Target Price

At the immediate support level.

Note: Use trailing stop loss along with stop loss to secure your profit.

Common Mistake by Traders

Technical analyst and expert always give the advice to use stop loss but over smart traders ignore it. As a result, they often made a huge loss.

It is wise to use a trailing stop loss. It will secure your profit and also help to gain maximum profit. But traders often forget to use it while trading. 

People generally not prefer to use other technical indicators with crossover. It is advisable for the intraday trader to use some technical indicators like Bollinger Bands, Volume profile, price trends, momentum, and volatility along with crossover. These technical indicators are used to filter the false signal.

Limitations

Crossover cannot be used alone some indicators that are used with a crossover are MACD, RSI and Bollinger Bands.

It is not advisable to use a crossover pattern for the longer time frame. Mostly it is used for short-term period i.e. maximum 1-2 day.

If trader or investor wants to use crossover for longer time frame then they have to use Crossover or Golden Cross. Sometimes it gives a false signal.

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