Golden Cross

Loading the player...

What is a 'Golden Cross'

The golden cross is a bullish breakout pattern formed from a crossover involving a security's short-term moving average (such as the 15-day moving average) breaking above its long-term moving average (such as 50-day moving average) or resistance level. As long-term indicators carry more weight, the golden cross indicates a bull market on the horizon and is reinforced by high trading volumes.

Golden Cross

BREAKING DOWN 'Golden Cross'

There are three stages to a golden cross. The first stage requires that a downtrend eventually bottoms out as selling is depleted. In the second stage, the shorter moving average forms a crossover up through the larger moving average to trigger a breakout and confirmation of trend reversal. The last stage is the continuing uptrend for the follow through to higher prices. The moving averages act as support levels on pullbacks, until they crossover back down at which point a death cross may form. The death cross is the opposite of the golden cross as the shorter moving average forms a crossover down through the longer moving average.

Applications of the Golden Cross

The most commonly used moving averages are the 50-period and the 200-period moving average. The period represents a specific time increment. Generally, larger time periods tend to form stronger lasting breakouts. For example, the daily 50-day moving average crossover up through the 200-day moving average on an index like the S&P 500 is one of the most popular bullish market signals. With a bell weather index, the motto "A rising tide lifts all boats" applies when a golden cross forms as the buying resonates throughout the index components and sectors.

Day traders commonly use smaller time periods like the 5-period and 15-period moving averages to trade intra-day golden cross breakouts. The time interval of the charts can also be adjusted from 1 minute to weeks or months. Just as larger periods make for stronger signals, the same applies for chart time periods as well. The larger the chart time frame, the stronger and lasting the golden cross breakout tends to be. For example, a monthly 50-period and 200-period moving average golden cross is significantly stronger and longer lasting than the same 50.200- period moving average crossover on a 15-minute chart. Golden cross breakout signals can be utilized with various momentum oscillators like stochastic, moving average convergence divergence (MACD) and relative strength index (RSI) to track when the uptrend is overbought and oversold. This helps to spot ideal entries and exits.

RELATED TERMS
  1. Crossover

    The point on a stock chart when a security and an indicator intersect. ...
  2. Death Cross

    A crossover resulting from a security's long-term moving average ...
  3. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  4. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  5. Golden Rule

    The Golden Rule, as it pertains to government spending, stipulates ...
  6. Crossover Investor

    An investor who invests prior to, during and after a company's ...
Related Articles
  1. Trading

    What a Golden Cross Might Mean

    Many technicians see a golden cross as a sign that a stock’s value is headed higher. If a stock’s performance continues to lag, and no golden cross appears, its moving averages will remain roughly ...
  2. ETFs & Mutual Funds

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  3. Trading

    Forex Investing: How To Use The Golden Cross

    Many currency traders know about the golden cross, but most don't utilize it. Learn how you can profit from this FX trend indicator.
  4. Trading

    Use Moving Averages to Buy Stocks

    A moving average constantly updates a stock's average price, but it cannot predict a stock's performance.
  5. Investing

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  6. Trading

    Simple Moving Averages Make Trends Stand Out

    The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool.
  7. Markets

    What's a Death Cross?

    A death cross is seen when the short-term moving average of a security or index falls below its long-term moving average.
  8. Financial Advisor

    Investing After the Golden Age

    How can advisors manage client expectations now that the "Golden Age" of investing is over?
  9. Trading

    Technical Analysis Strategies For Beginners

    Technical analysis entails studying charts, trends and patterns to predict a stock’s movement.
  10. Trading

    3 Nasdaq-100 Stocks With Bullish Crossovers

    50/200 moving average crossovers can detect trend changes before price action sets off broad based buy or sell signals.
RELATED FAQS
  1. How are Golden Cross patterns interpreted by analysts and traders?

    Learn why the golden cross is considered a major technical indicator of a bull market in an individual stock, market index, ... Read Answer >>
  2. How do I build a profitable strategy when spotting a Golden Cross pattern?

    Learn the primary trading strategies that traders and market analysts employ when they have identified the occurrence of ... Read Answer >>
  3. What is the difference between a Golden Cross and a Death Cross Pattern?

    Learn the difference between the golden cross and the death cross, both of which are considered important technical indicators ... Read Answer >>
  4. How effective is creating trade entries after spotting a Golden Cross pattern?

    Explore the components of the golden cross pattern for elements of effective trading strategy based on this pattern, including ... Read Answer >>
  5. What does it mean when an index or stock exhibits a death cross?

    Find out what it means when an index, stock or exchange exhibits a death cross pattern between its short-term and long-term ... Read Answer >>
  6. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center