Trading Strategy

The Golden Cross

Golden cross is technical indicator which is opposite to Death Cross. It is based on moving average of different time frame. This trading pattern is used by traders to identify the short term as well as long term market trend.

Mostly Intraday trader or positional traders use this technical indicator to identify market trend.

Trading Strategy with Golden Cross

Golden Cross is generally used by traders in 2 different time frames.

  1. 15 day moving with 50 day moving average:

Short term or intraday traders mostly use 15 day moving average with 50 day moving average. When 15 day moving average crosses above 50 day moving average it forms positive momentum or bullish trend.

Here 50 day moving average also acts as a resistance.

Entry Point

15 DMA cross above 50 DMA= BUY

Stop Loss

Lowest point of the pattern

Target Price

At the immediate resistance level

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

  1. 50 day moving average with 200 day moving average

Long term or positional traders often use 50 day moving average with 200 day moving average. When 50 day moving average crosses above 200 day moving average it indicates strong bullish trend for longer time horizon.

Here 200 day moving average also acts as a very strong support.

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

Entry Point

50 DMA cross above 200 DMA= BUY

Stop Loss

Lowest point of the pattern

Target Price

At the immediate resistance level

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

Common Mistake by Traders

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

It is wise to use 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 cross over. It is advisable for 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 crossover are MACD, RSI and Bollinger Bands.

It is not advisable to use crossover pattern for 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 Death Cross. Sometime it gives false signal.

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