Death Cross

November 21, 2023 - Around 3 mins mins to read

Understanding the Death Cross in Crypto

A death cross refers to the situation where a slower moving average crosses the faster moving average in an upward direction. Traders commonly use the 50-day moving average and the 200-day moving average to identify death crosses. In order for a death cross to occur on trading charts, the slower-moving average must cross the faster-moving average from below. While death crosses can also be observed in shorter periods like 5-day and 15-day averages, longer periods are generally considered more reliable and provide stronger signals for assets, stocks, or cryptocurrencies.

It is crucial to identify the key stages of a death cross in order to determine the optimal time to exit the market before a bearish trend begins. There are three main stages of a death cross:

In the first stage, the price action of an asset either consolidates or sharply drops after a prolonged uptrend. The consolidation period indicates a loss of momentum in the current uptrend and suggests a potential trend reversal. Throughout this stage, the 50-day moving average remains above the 200-day moving average.
The second stage is characterized by the moment when the 50-day moving average falls and crosses the 200-day moving average, forming a death cross. This crossover is considered a bearish trend for the asset.
In the third stage, the asset’s price continues to fall, creating a downtrend. In most cases, the price remains traded below the 50-day moving average.

Observe how the graph moves horizontally when the yellow line (representing the 50-day moving average) is above the purple line (the 200-day moving average). When the 200-day moving average crosses the 50-day moving average from below, a death cross is formed. This signals a price decline, which later recovers slightly when a golden cross is formed.

Accuracy of the Death Cross

The death cross is typically formed during a falling price period, but it does not definitively indicate the end of a bull market. There have been instances where a death cross appeared, but the price only experienced a slight decline before recovering and surpassing previous all-time highs. This is why financial analysts have differing opinions on the moving averages used to identify a death cross. Some rely on the classic 200-day average and 50-day average, while others consider the crossover of the 100-day moving average over the 30-day moving average as a reliable indicator of a death cross and the start of a potential bearish trend.

Using the death cross as the sole indicator is not a recommended strategy. Financial analysts suggest incorporating various technical indicators, such as the accumulation/distribution indicator, on-balance volume (OBV), relative strength index (RSI), moving average convergence divergence (MACD), and the stochastic oscillator, to gain a comprehensive understanding of price and volume activity from different perspectives before making informed decisions to buy or sell assets, stocks, or cryptocurrencies.

Glossary

Death Cross

Understanding the Death Cross in Crypto

It is crucial to identify the key stages of a death cross in order to determine the optimal time to exit the market before a bearish trend begins. There are three main stages of a death cross:

In the first stage, the price action of an asset either consolidates or sharply drops after a prolonged uptrend. The consolidation period indicates a loss of momentum in the current uptrend and suggests a potential trend reversal. Throughout this stage, the 50-day moving average remains above the 200-day moving average.
The second stage is characterized by the moment when the 50-day moving average falls and crosses the 200-day moving average, forming a death cross. This crossover is considered a bearish trend for the asset.
In the third stage, the asset’s price continues to fall, creating a downtrend. In most cases, the price remains traded below the 50-day moving average.