A death cross confirming a downtrend in Bitcoin.
Now that we understand what a golden cross is, it’s fairly easy to understand why a death cross is a bearish signal. The short-term average is crossing below the long-term average, which indicates a bearish outlook on the market.
The death cross has provided a bearish signal before major economic downturns in history, such as in 1929 or 2008. However, it may also provide false signals, for example, in 2016.
False death cross crossover signal on the SPX in 2016.
As you can see on the example, the market printed a death cross, only to resume the uptrend and print a golden cross shortly after.
We’ve discussed both of them, so the difference between them isn’t difficult to understand. They are essentially the polar opposites of each other. The golden cross may be considered a bullish signal, while the death cross a bearish signal.
Both of them can be confirmed by high trading volume. Some technical analysts may also check other technical indicators when looking at the crossover context. Common examples include the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI.
What’s also important to remember is that moving averages are lagging indicators and have no predictive power. This means that both crossovers will typically provide a strong confirmation of a trend reversal that has already happened – not a reversal that’s still underway.
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