Does the Golden Cross really "make money"?

1. What Are Golden Cross and Death Cross?

Golden Cross: A Golden Cross appears on daily charts when the 50-day moving average (MA50) crosses above the 200-day moving average (MA200), with the MA50 positioned above the MA200 and the price chart located above both moving averages. In the example provided, MA50 is represented by the yellow line, and MA200 by the purple line. A Golden Cross is a bullish signal suggesting that the market is likely to trend upwards in the medium term.

Death Cross: The Death Cross appears on daily charts when the MA50 crosses below the MA200, with the MA50 positioned below the MA200 and the price chart below both moving averages. This pattern signals a potential bearish trend.

Key Considerations:

For a Golden Cross to be valid, the price chart should be above both moving averages. Conversely, for a Death Cross, the price chart should be below both moving averages. If a Golden Cross occurs but the price chart is below both lines, or if a Death Cross happens with the price chart above, it is important to re-evaluate the market trend using candle patterns.
False Crosses: False crosses are not uncommon in the market. To avoid these, combine moving average analysis with market trend analysis and candle pattern evaluation. If the price chart does not align correctly with the moving averages, exercise caution.

Uses of Golden Cross and Death Cross:

Trend Identification: For example, a Golden Cross can indicate that the market is likely to experience an upward wave or at least a short-term bounce.
Trading Signals: Since the price chart should be above the Golden Cross, when the market corrects and the price touches the moving averages, it may bounce back and continue the previous uptrend. This presents buying opportunities

Example on the chart
Golden Cross

The Moving Average (MA) in general, and the Golden Cross and Death Cross in particular, are extremely important indicators widely used by investors in long-term investment strategies to predict medium- to long-term trends.

Now, let's explore a more advanced type of moving average: the Exponential Moving Average (EMA).

2. Exponential Moving Average – EMA

The chart below shows the EMA12 and EMA26.

According to many traders, the 12 and 26-period EMAs are the most effective for short-term trading. EMA, like other moving averages, helps identify trends and trading signals. The chart illustrates the EMA12 and EMA26 during an uptrend. The price consistently stays above the two EMAs, with each touch of the EMA indicating a potential continuation of the uptrend. EMA crossovers can also serve as entry or exit points for trades.

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Now let's move on to the most exciting part of this article. I will share with you a trading technique using the EMA.

3. Advanced Strategy Using EMA: Short Selling

Identifying the Strategy:

Trend: Ensure the market is in a downtrend, as this strategy involves short selling.
EMA Cross: Look for a downward crossover of the EMA, which signals a bearish trend.
Confirmation: A bearish candle pattern when the price touches the EMA for the first time in a downtrend confirms the strategy.

Trade Execution:

Opening a Short Position: After a price drop, if the EMA crosses downward and the price is below the EMA, and if the price touches the EMA and forms a bearish reversal pattern, consider opening a short position.
Stop Loss: Set a stop loss if the price breaks above and closes above the EMA. Exit the trade if the EMA shows an upward crossover.

Chúng ta cùng đi vào ví dụ thực tế trên biểu đồ nhé:

It can be observed that during this period, the price has reversed and started to decline. When the price chart first returns to touch the EMA, a trend reversal candlestick pattern begins to emerge. I will set up my take-profit and stop-loss orders as illustrated in the chart.

4. Using EMA Effectively

Combining with Candle Charts: The core of analysis is still the candle chart. Candlestick patterns can signal trend reversals when the price interacts with the EMA, indicating potential market moves.
Combining with Resistance Levels: Resistance levels, when combined with the EMA and reversal candlestick patterns, provide stronger signals.

While no trading strategy is infallible and the EMA-based strategy may fail in certain market conditions, defining entry points, target prices, stop-loss levels, and adhering to your plan is crucial. This strategy is particularly effective in a downtrend but can struggle in an uptrend.

Through this article, we hope you gain a better understanding of the Golden Cross and Death Cross and learn how to apply these concepts to enhance your trading strategy.

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