Understanding the Bitcoin Golden Cross

Bitcoin is by far the most recognized crypto within the industry. The decentralized asset controls more than 40% of the crypto market share. No wonder it is the most talked about and traded cryptocurrency. Many investors prefer to hold Bitcoin due to its intrinsic value-retaining ability. Some buy and sell the cryptocurrency using certain chart patterns and trading indicators. One popular indicator that traders rely on is the Bitcoin Golden Cross which is considered a bullish chart pattern.

A Bitcoin Golden Cross is formed when a short-term moving average (MA) crosses over the long-term MA. How do you spot this chart pattern whilst carrying out technical analysis, and how does it work? This guide provides all the answers and more.

What Is a Golden Cross?

Golden cross is a chart pattern that occurs when a short-term moving average crosses and trades above a major longer-term moving average. As one of the top trading strategies, it determines the onset of a bullish run after a previous market downtrend or a bear market. 

The 50-period (hours, days, weeks) is the most common short-term moving average used, whilst the 200-period is the most frequently used long-term moving average in golden cross events. However, other time frames are often used by investors whilst carrying out technical analysis of the market.

Moving averages (MAs) are some of the most used market indicators in golden crosses. However, others, like the simple moving average (SMA) and exponential moving average (EMA) pairs, can also be used to identify a golden cross. All these market indicators often point to the general market sentiment. When Bitcoin price action trades above the moving average, buyers take up more positions than sellers.

When Does a Golden Cross Occur?

The golden cross concept usually occurs in three major stages:

1. A bearish run where the short-term moving average is below the long-term MA
2. A market reversal causes the short-term MA to cross above the long-term MA
3. A sustained uptrend where the short-term MA stays above the long-term MA and creates a new price action.

Even though the golden cross concept may sound unfamiliar to many, it is a common market analysis tool. It is used whilst analyzing stocks and other financial markets. The technical analysis tool has is now commonly used within the cryptocurrency market.

How Does the Golden Cross Work?

Golden crosses usually precede surges in price. This is why many investors view it as a bullish chart pattern to search for. However, the indicator is not bulletproof. There have also been many scenarios where it did not precede a long-term uptrend. 

As a result, traders must utilize other market indicators to ensure the validity of the golden cross. One commonly used indicator is the relative strength index (RSI) – a stochastic oscillator that measures market momentum. It does this by tracking the buying and selling pressure on three key metrics, including oversold, underbought, and overbought.

Another such indicator is the moving average convergence (MACD). This presents a buy and signal graph beneath an underlying asset. Additionally, high trading volume during a Bitcoin golden cross event can serve as a signal for an imminent uptrend.

Examples of a Golden Cross

The Bitcoin Golden Cross is a major bullish event that does not occur often. However, this is what makes the Bitcoin Golden Cross so useful and when it does occur we tend to see significant moves to the upside.

For instance, a Bitcoin Golden Cross was formed on Feb. 7, 2023. Then, the 50 moving average crossed the 200 moving average. This caused the price action of Bitcoin to significantly spike up from $18,994.11. Since the Bitcoin Golden Cross event occurred, the cryptocurrency has surged to around $29,000.

How To Spot Golden Cross

Identifying a Bitcoin Golden Cross is straight forward. Golden Crosses occur when a short term moving average crosses bullish with a long term moving average. The most popular moving averages are the 50-period and 200-period timeframes. Therefore, in this example, when a 50-day MA crosses over the 200-day MA, then a Bitcoin Golden Cross event is in the process.

What To Watch Out for When Using Golden Cross

While the Bitcoin Golden Cross chart pattern is considered a bullish signal, fake breakouts are often seen when they occur. For instance, the Bitcoin Golden Cross event posted a fake uptrend signal in February 2022. The 50-day MA slightly rose above the 200-day MA. However, it soon dipped below the 200-day MA shortly after. 

To address this issue, traders rely on several other market indicators like the RSI, MACD and high trading volume in support of the golden cross. 

Should Users Rely on the Golden Cross?

The market indicator is a useful market analysis tool that points to a bullish signal. Most investors often rely on this chart pattern to pinpoint the end of a market downtrend and bullish reversal. However, the chart pattern cannot be used in isolation in making investment decisions. This is because of its potential to post fake signals. Given this, it is important to properly manage risks in the event that a bearish reversal returns.

FAQ

Does Golden Cross Work in Crypto?

A golden cross event often occurs in the crypto space, especially within the Bitcoin price. A more recent Bitcoin Golden Cross occurred on February 7th, 2023. This led to a bullish uptrend – a month’s high of $28,000 plus.

What Is the Death Crossover for BTC?

The Bitcoin death cross is the opposite of a golden cross. This chart pattern occurs when the 50-day short-term moving average crosses over, dropping below the 200-day moving average. It usually signals a long-term downward swing in price momentum, reflecting a bear market.

To identify a death crossover in BTC price, the asset’s price often consolidates after a major uptrend. By this, the price drops sharply, leading to a sustained bearish run. The second stage forms the death cross with a 50-day MA. It eventually crossed beneath the 200-day MA, which served as the earlier support. Once this occurs, the selling pressure increases exponentially. This leads to the third stage, where the market continues to spiral downward.

Is Golden Cross Profitable?

The golden cross is one of the signals for a bullish breakout. Investors who have jumped on a possible golden cross event have posted profits. However, the crypto market is highly volatile, and investors should use proper trade management. This reduces the impact of a price reversal.

Is Golden Cross a Good Strategy?

Golden cross is one of the top trading strategies that investors often anticipate. The chart pattern often serves as a precursor to the bull run.