Compared to the golden cross, a death cross involves a cross of the MA to the downside. This marks a definite market decline and usually occurs when the short-term MA is trending down, crossing the long-term MA.
Simply put, it is the exact opposite of the golden cross. A death cross is often read as a bearish signal. The 50-day MA usually crosses below the 200-day MA, signaling a downtrend.
There are three phases that mark a death crossing. The first occurs during an uptrend when the short-term MA is up. still above the long-term MA. The second phase is characterized by a reversal, during which the short-term MA crosses below the long-term MA. A downtrend is then initiated as the short-term MA continues to move lower, staying below the long-term MA.
Like the Golden Crosses, no two Death Crosses are alike, but there are specific indicators that signal their appearance. Next, we will look at each of the stages of a death crossing in detail. The first stage of a death cross is usually marked by an asset that is in an uptrend. This is followed by a weakening of the 50 day MA, the first sign that bears may be on the horizon. As prices begin to fall after reaching their high, the short-term MA diverges from the long-term MA.
In the second stage, the 50-day MA crosses below the 200-day MA. This is a key point as it indicates that the asset may be entering a downtrend. The divergence between the two MAs deepens as prices continue to fall. The crossroads of death begins to form much more clearly during this stage.
The final stage is over. marked by the 50-day MA which continues the downward trend, holding below the 200-day MA. This indicates that the downtrend is on. on going. The death cross typically leads to increased selling pressure as traders liquidate their positions in anticipation of further price declines.
However, if the downtrend does not hold, it could signify a short lived push and prices rally quickly, in which case the death cross is considered a false signal.
