Golden Cross: what it is, how to trade it?

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Golden Cross. It sounds so mesmerizing, doesn’t it?

But what is it and how can you benefit from it?

Golden Cross, is one of the most mentioned trading synonyms out there. A lot of traders are watching for Golden Crosses and trading them. And if you are not one of them, my strongest recommendation is to add this to your list.

Golden Cross is a crossover of two moving averages, 50 and 200. And this crossover provides a clear sign for a trend change in your favorite trading pair. This crossover is an indication of change from bear to bull market and it’s usually followed by an increase in trading volume for the pair it is having.

Now, how can you identify when to enter the trade and make proper returns from it?

Golden Cross, to be considered as one, needs to consist of three stages:

Stage 1 is a clear downtrend, where a smaller moving average (50) is trading below the larger one (200).

Stage 2 is their cross, which happens when the smaller value moving average is going to move from below to above the larger one. This stage is called the moving average crossover.

Stage 3 is the trend change, meaning that the market has switched from selling to buying, or from bearish to bullish momentum.

This setup only can show you when a good moment for entering a trade has emerged. Below, I will show some examples, random ones I have found just by glancing at my charts.

Now, I am a swing trader, and I love looking for such setups on a daily timeframe, but where you look for yours it’s completely up to you and your trading style.

Example 1

 

The first example I found is on DJIA or Dow Jones Industrial Average Index, a stock index following 30 large, publicly owned blue-chip companies. One pair I simply love to trade, in and out.

This Golden Cross has happened a couple of years ago, 2016 to be precise. And it lasted for two and a half years. For those two and a half years, everybody who traded solely this setup could’ve made some nice profits.

This crossover happened at the beginning of August 2020 and is still active, massive drop in DJIA index price due to Covid effects have been erased pretty quickly and the market rally has continued for some time now.

Example 2

The second example, EURUSD on a Daily timeframe shows an excellent trend change and a huge rally in EUR favor. The market went from 1.13 to almost 1.24 which is, to be honest, a massive rally for this pair, which tends to move around 50-60 pips daily.

Example 3

The third example is Golden Cross on the XAUUSD pair (or just Gold, as we call it). This one was one of the biggest rallies I have found in the Forex markets, this rally could have made you decent profits if you were trading it.

To be honest, I use Golden Cross regularly. This setup, when spotted on the Daily timeframe, gives me a clear sign in which direction all my trades will go. And I only go long during that time.

Sometimes, I even enter a couple of trades on the same pair – the so-called Adding to a Position when this setup gives me signals.

Of course, trading just one confluence can cause damage to your account if you have not to demo traded this first. But if you have used such a setup in past, and know ins and outs of using it, decent returns will come your way.

Golden Cross paired with some additional confirmation, like support and resistance, Fibonacci extensions, or simply using this same setup on a lower timeframe, increases your chance for a winning trade.

Always have at least 3 confluences when entering a trade, bring the odds in your favor.

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