What is a Golden Cross?

The golden cross is a candlestick pattern that occurs when the faster moving average (MA) rises above the slower moving average. This pattern is one of the most reliable indicators of a long-term bull market. It is an opposite of the death cross which indicates a bear market (see photo below).

 

As seen in a sample above, the faster MA - 50 DMA - is raising above the slower one - 200 DMA - and thus, creating a golden cross. In general, there are three particular stages to a golden cross.

 

The first stage involves a downtrend that is about to end because of the strong buying interest. In the stage 2, the faster moving average crosses the slower moving average, forming a Golden Cross and the new trend emerges.


In the last stage, the newly-formed uptrend is prolonged and remains active as long as the short-term moving average stays above the long-term moving average.

Even though the Golden Cross is usually considered being a pretty reliable, some analysts and traders hesitate to use it as a bull market indicator. All of the indicators, including this one, often produces a false signal and many times traders make an entry based on this signal.