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In this article we will discuss the Golden Cross and the Death Cross. These colorful terms refer to graphic models that most traders use in their trading every day, but may not mean these names. Along with many of their counterparts, they include a whole section of technical analysis . Most often, these graphical models are referred to as the intersection of moving averages.
Moving averages are vital market data, but all of them have one common limitation - they lag behind current events. By that time, when the 20 - period Moving Average is bent up, confirming the trend, the movement is already continuing with might and main and can even be completed. Although faster options (like exponential Moving Averages) speed up the signaling, all the same, all of them send trading signals too late.
The use of several moving averages allows us to overcome many of the shortcomings of a single instance. They are especially effective when used in conjunction with graphic pricing models. For example, take the long-term and short-term moving average.
Then watch the price movement when the moving averages turn to each other and cross. In this case, a good trading signal can be obtained, especially when it coincides with a key support or resistance level .
Moving averages exhibit all the usual characteristics of support and resistance . For example, one Moving Average will often bounce off another when it is first tested, rather than breaking through immediately. Then, like price bars, the odds shift toward breaking and crossing the moving averages with the next test. On the contrary, when one Moving Average cannot break through the other Moving Average after several attempts, it gives a strong signal about the possibility of a trend reversal.
Different periods of trading require different periods for moving averages. Trading on fluctuations, with a period of one to three days, works well with the use of moving averages, the ratio between the periods of which corresponds to 3- or 4-fold difference. This allows convergence / divergence between different trends to work in the interests of the trader.
For example, the daily chart may show a strong uptrend, while the 60-minute chart starts a deep correction. The 40-day moving average will continue to point in the direction of the trend over time, but the 13-day moving average (3x13 = 39) will quickly turn down and indicate the direction of possible movement for a longer moving average. The point where they intersect is the main level of support.
Intersections mark important changes in momentum and support / resistance levels regardless of the time period. Many traders, accordingly, can only stick to moving averages and know most of what they need to know. The most popular parametrims for Moving Averages are: 20-day for short-term trends, 50-day for medium-term and 200-day for the big picture.
Moving averages are vital market data, but all of them have one common limitation - they lag behind current events. By that time, when the 20 - period Moving Average is bent up, confirming the trend, the movement is already continuing with might and main and can even be completed. Although faster options (like exponential Moving Averages) speed up the signaling, all the same, all of them send trading signals too late.
The use of several moving averages allows us to overcome many of the shortcomings of a single instance. They are especially effective when used in conjunction with graphic pricing models. For example, take the long-term and short-term moving average.
Then watch the price movement when the moving averages turn to each other and cross. In this case, a good trading signal can be obtained, especially when it coincides with a key support or resistance level .
Moving averages exhibit all the usual characteristics of support and resistance . For example, one Moving Average will often bounce off another when it is first tested, rather than breaking through immediately. Then, like price bars, the odds shift toward breaking and crossing the moving averages with the next test. On the contrary, when one Moving Average cannot break through the other Moving Average after several attempts, it gives a strong signal about the possibility of a trend reversal.
Different periods of trading require different periods for moving averages. Trading on fluctuations, with a period of one to three days, works well with the use of moving averages, the ratio between the periods of which corresponds to 3- or 4-fold difference. This allows convergence / divergence between different trends to work in the interests of the trader.
For example, the daily chart may show a strong uptrend, while the 60-minute chart starts a deep correction. The 40-day moving average will continue to point in the direction of the trend over time, but the 13-day moving average (3x13 = 39) will quickly turn down and indicate the direction of possible movement for a longer moving average. The point where they intersect is the main level of support.
Intersections mark important changes in momentum and support / resistance levels regardless of the time period. Many traders, accordingly, can only stick to moving averages and know most of what they need to know. The most popular parametrims for Moving Averages are: 20-day for short-term trends, 50-day for medium-term and 200-day for the big picture.
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