Crypto Glossary

Death Cross

A death cross is a bearish technical trading indicator that occurs when the 50-day moving average falls below the 200-day moving average, indicating a big sell-off.

What Is a Death Cross in Crypto?

A death cross is formed when a slower moving average crosses the faster moving average in the upward direction. The most popular moving average used by day traders is the 50-day moving average and the 200-day moving average. The slower-moving average has to cross the faster-moving average from below for a death cross to be formed on the trading charts. Other examples of death crosses can be seen in 5-day and 15-day averages, however, longer periods are more reliable and provide stronger signals of an asset/stock/cryptocurrency.

It is important to identify the key stages of a death cross to lock the perfect time of getting out of the market before the bearish trend begins. There are three main stages of a death cross:

  • The price action of an asset either goes into consolidation or drops sharply after following an uptrend for a long period. The consolidation period is often an indicator that the current uptrend is losing its momentum and a trend reversal can be expected. During this entire stage, the 50-day moving average remains above the 200-day moving average. 
  • The second stage defines the exact moment when the 50-day moving average falls and crosses the 200-day moving average. This forms a death cross and is considered a bearish trend of the asset. 
  • The third stage is the downfall of the asset's price as the price action falls lower and a downtrend is created. After this stage, the price continues to be traded below the 50-day moving average in most cases.

Notice how the graph was moving in a horizontal direction when the yellow line (signifying the 50-day moving average) was 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 and the price falls from that point, and later, recovers slightly when a golden cross is formed.

How Accurate Is the Death Cross?

The death cross is usually formed when the price is falling, however, it is not a definitive indicator that the bull market has ended. There have been many instances when a death cross appeared, but the price only fell slightly, recovered, and then broke the previous all-time highs! This is also why financial analysts are divided when it comes to setting moving averages to identify a death cross. Some use 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.

Like every technical indicator, using the death cross alone is not a good strategy. Financial analysts advise using a variety of technical indicators to understand the price and volume activity from different angles before making a concrete decision to buy or sell an asset/stock/cryptocurrency. These technical indicators include, but are not limited to accumulation/distribution indicator, on-balance volume (OBV), relative strength index (RSI), moving average convergence divergence (MACD), and the stochastic oscillator.

Powered by Froala Editor

Be the first to know about Crypto news everyday

Get crypto analysis, news and updates right to your inbox! Sign up here so you don't miss a single newsletter.

© 2021 COINCU Financial Group Inc. Address: Road Town, Tortola, British Virgin Islands (BVI).

Email us: [email protected]