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.

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