Golden Cross Vs. Death Cross

Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Thursday from 9 AM ET, as our risk management educator.

With 30 years' experience working as an active investor in equities, commodities, futures and FX, there are few better to talk on the subject of trading strategies.

Bob has developed a method for breaking down his key fundamentals of risk management in a way that he believes retail traders can understand and use to get actionable insights to bring into their own trading.

I had the opportunity to share my thoughts on market sentiment during an interview on Fox Business News. The question was, “How long will this bull market last?” My answer: around eight years.

Bull markets are exciting for traders. They offer much easier opportunities for day trading and short-term strategies because of the inherent upward bias in U.S. equity markets. This bias is driven by institutional buyers, like insurance companies and pension funds, who are perpetually adding to their positions.

However, corrections are inevitable, even in a strong bull market. Traders often get caught buying dips at 2%, 5%, or even 10% corrections, only to see the market drop further. That’s why understanding risk management and market cycles is so crucial.

Before we jump into examples, let’s define these terms.

• Golden Cross: This occurs when the 50-day moving average crosses above the 200-day moving average, signaling potential long-term bullish momentum.
  
  
• Death Cross: This is the opposite. It happens when the 50-day moving average crosses below the 200-day moving average, indicating possible bearish momentum.

Both are lagging indicators, meaning they reflect past price movements and often mark significant trend shifts. However, these patterns need context to be actionable.

The Relative Strength Index (RSI) is a useful tool to pair with Golden and Death Crosses. It helps identify whether a market is overbought or oversold.

• For a Golden Cross, look for pullbacks in RSI after it reaches overbought territory. This often coincides with a retracement to key support levels.
  
• For a Death Cross, avoid entering trades when the RSI is deeply oversold, as short-covering rallies are likely. Instead, wait for the RSI to stabilize before entering short positions.

In one Tesla example, a Death Cross coincided with an RSI in neutral territory, signaling a balanced market. This provided an opportunity to short the stock when it rallied back to the 200-day moving average and then failed.

1. Golden and Death Crosses are lagging indicators. They signal shifts in long-term momentum but should not be used as standalone tools.
   
2. Context matters. Look for supporting factors like RSI levels and pullbacks to key moving averages before acting.
   
3. Patience is key. Don’t chase the cross itself—wait for price action to confirm the trend.
   
4. Manage risk effectively. Use tight stops and smaller positions, especially when markets are volatile.

Golden and Death Crosses are valuable tools, but they’re not magic. They require careful analysis and a solid understanding of the market context to be effective.

Live Sessions (hereafter referred to as the “Content”) are produced by TradeZero. The Content may include the views and opinions of TradeZero and a third-party participant, Bob Iaccino. Bob Iaccino is compensated by TradeZero for participating in the Content. Mr. Iaccino’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero is not responsible for and neither affirms nor endorses any of Mr. Iaccino’s views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

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