The Golden Cross is a bit different from some of the graphic patterns we have already mentioned as it requires two moving averages. In fact, you could almost trade without candles using this chart model, although we don’t recommend doing so.
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WHAT IS A GOLDEN CROSS STOCK MODEL?
A gold cross occurs when a stock’s fastest moving average crosses a slower moving average upwards. For this reason, gold cross-stocks are usually found after being in correction for a while.
There is also a very specific set of moving averages involved in this strategy.
The gold cross occurs when the 50-period moving average exceeds the 200-period moving average. This is typically seen on a daily chart, but can also be found on smaller time frames such as hourly, 30-minute or even intraday 1, 2 or 5-minute charts.
It signals to trendsetters that the current correction in a stock or market could start a new uptrend.
HOW TO READ THE GOLDEN CROSS IN STOCK TRADING?
For a gold cross to occur, the 50th must — of course — trade below the 200 moving average. To this end, it is expected to see that this happens in the context of a downtrend. The price is trading lower than it was 200 days ago. And along that sense, the fastest 50th will be below that longest time average.
When the intersection occurs, it signals to investors that momentum may be evolving. Pair it with other graphic templates like the double bottom we mentioned above and you may find even more confirmation for your strategy.
Ideally, you would want to see the speed of upward movement over the shortest time period that exceeds the rate of change of the longest time period. When that happens, it might be time to buy.
That said, there are three stages of a golden cross that you should understand.
THREE PHASES OF A GOLDEN CROSS STOCK
Step 1
In stage 1 of a gold cross, we have a downward trend. On a chart, you’ll want to see your moving average of 200 in a clearly downward trend, along with the 50 moving average. However, the moving average of the 200 must be above the 50ma on the chart.
Step 2
This is the crossover phase. Once a stock recovers from the downtrend, consolidates and gives institutions time to accumulate stocks, it’s time to mark the stock price again! As part of this process, the 50th and 200th trends will eventually cross at the beginning of the new uptrend.
Step 3
Phase 3 is the new uptrend phase of the gold cross stock model. Once the 50 moving average is trending above the 200 moving average, it is expected to remain so for some time.
Golden Cross cheat sheet signals
Although the gold cross pattern is pretty simple, here are some examples to use as a cheat sheet when trading.
You must know that the opposite model of the golden cross is the cross of death. In an uptrend, the 50 moving average crossing below the 200 moving average is a signal to long-term traders that the trend may change in the opposite (bearish) direction. Become your sales signal.
