Bitcoin death cross’: What is it and what does it mean for crypto


Where we can see this very clearly is with gold—you remember, that analog version of bitcoin? Anyway, on the chart, we can see a death cross taking shape eight times over a roughly 15 year period. Golden crosses can be analyzed under many different time frames depending on the trader and what is being analyzed. Day traders typically use smaller time frames, such as five minutes or 10 minutes, whereas swing traders use longer time frames, such as five hours or 10 hours. The S&P 500 Index formed a Death Cross on March 14, 2022, for the first time since March 2020.

  1. Day traders, for example, may find smaller periods, such as the 5-period (e.g., minute) and 15-period moving averages, more helpful in trading intraday death cross breakouts.
  2. This event often occurs well in advance of the 50-day moving average crossover.
  3. Traders seeking a broader view of trend conditions might look to the crossover event as a significant indicator that the market environment may be turning bearish.
  4. Most of the “damage” to the Bitcoin price had already been done by the time the death cross formed—it’s a lagging indicator, remember?

It’s a bullish technical indicator that forms when an asset’s 50-day SMA rises above the 200-day SMA. While a bearish signal, the pattern is often a better indication of a short-term market slump or price correction than the emergence of a bear market or recession. It can help traders determine exit points as well as shorting opportunities. As a lagging indicator, the death cross may provide limited predictive value for traders and be more valuable as confirmation of a downturn rather than as a trend reversal signal.

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Knowing this, traders should try to employ other indicators and filters to filter false death cross signals. The track record of the death cross as a precursor of market gains is even more appealing over shorter time frames. A bitcoin death cross is no different than a death cross in any other asset class. This crossover pattern is an indication that intermediate-term Bitcoin prices are falling below longer-term support levels. Generally speaking, this is an indication that Bitcoin is in a corrective price phase. There are two longer-term moving average crossovers that are most famous or infamous among traders.

False and True Death Crosses

The opposite of the death cross is the so-called golden cross, when the short-term moving average of a stock or index moves above its longer-term moving average. Many investors view this pattern as a bullish indicator, even though the death cross was typically followed by the bigger gains in recent years. When this reversal happens, the intermediate trend eventually overtakes the longer-term trend and the new direction is downward. When that cross occurs, we call it a death cross, signifying the demise of the prior uptrend or bull market. By its very nature the simple moving average is a lagging indicator, meaning that it relies on past price action to provide assistance when analyzing current market conditions. Inherently, the SMA has a lag period, resulting in the signal being produced some time after the move has occurred.

Both crosses help traders in making investment decisions, particularly knowing when to enter and exit a trade. The death cross pattern often occurs after the trend has already shifted from bullish to bearish, i.e., it confirms the occurrence of a trend reversal; it doesn’t predict it. This is because crossovers are based on moving averages, lagging indicators formed on historical data that trail the underlying asset’s price action. So, basing your trading strategy solely on them can result in missed opportunities for profitable trades or mitigating losses.

The downside moving average crossover may not occur until significantly after the point at which the trend has shifted from bullish to bearish. A security’s price may have already fallen a substantial amount before the crossing death signal. A golden cross indicates a long-term bull market going forward, while a death cross signals a long-term bear market. Both refer to the solid confirmation of a long-term trend by the occurrence of a short-term moving average crossing over a major long-term moving average. The Death Cross is generally considered a bearish signal in technical analysis.

In June of 2021, the 50-day moving average of Bitcoin fell below its 200-day moving average and a Death Cross appeared on its chart. The price of Bitcoin dropped from its April 2021 peak of $63,000 to just under $31,000, or almost half of its peak price. Those convinced of the pattern’s predictive power note the death cross preceded all the severe iq forex broker review bear markets of the past century, including 1929, 1938, 1974, and 2008. That’s an example of sample selection bias, expressed by using only the select data points helpful to the argued point. Cherry picking those bear-market years ignores the many more numerous occasions when the death cross signaled nothing worse than a market correction.

Traders often view the appearance of a Golden Cross as the beginning of a bullish market. However, to actively trade around the death cross as an event, you should study how your stock, crypto, or other asset has performed shortly after a death cross. For example, you may find that the more oversold an asset is when the death cross happens, the more chance you have of a reversal rally. If this is the case, look for bullish candlestick patterns and oversold conditions to confirm your long strategy. Individual stocks, futures, or commodities can also experience a death cross pattern.

Bitcoin death cross

This doesn’t necessarily mean that stock or crypto are completely bearish, despite being interpreted that way. On the other hand, if the market is slowly rolling over, you might look for healthy pullbacks into moving averages as shorting opportunities after the death cross is confirmed. This allows you to take advantage of a weak market by shorting weak rally attempts. The two most recent bitcoin death crosses occurred in July 2021 and January of 2022. In the first death cross in this image, Bitcoin rallied soon after, producing a golden cross. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.

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This followed Death Crosses formed by the other major stock market indexes, including the Nasdaq Composite Index and the Dow Jones Industrial Average, possibly reflecting the war in Ukraine. Bitcoin formed a classic Death Cross on January 14, 2022, when the 50-day moving average, shown in purple, crossed the 200-day moving average shown in dark red. When trading volumes are higher following the appearance of a Death Cross, it is often an indication that investors are selling “into the Death Cross,” confirming the downward trend. The Death Cross pattern is said to occur when the 50-day moving average and the 200-day moving average are used to identify a Death Cross, for a given security.

Don’t be surprised when you see a golden cross form not long after a death cross or vice-versa. It’s not uncommon for them to make cycles from one to the other—with 415 days between them on average. The death cross also goes well with the “fear index”—we didn’t make up the names.

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What does the death cross tell traders?

The death cross is a chart pattern that indicates the transition from a bull market to a bear market. This technical indicator occurs when a security’s short-term moving average (e.g., 50-day) crosses from above to below a long-term moving average (e.g., 200-day). As the names imply, one of these patterns represents a bullish event while the other represents a bearish event. The death cross occurs when the 50sma crosses the 200sma on a daily chart to the downside, implying lower prices in the stock market. The Golden Cross occurs when the 50sma crosses upward through the 200sma implying higher prices in the stock market. One of the primary bearish signals in stock trends is when the short-term moving average crosses below the long-term moving average.

The period following a Death Cross can be characterized by increased market volatility. Traders may witness larger price swings as market participants react to changing trend dynamics. Following a Death Cross, the asset’s price might enter a phase of consolidation or sideways movement.

If you are the latter, then the death cross actually becomes a sell-signal in and of itself (the buy signal being the golden cross). The death cross forms when an asset’s 50-day SMA (simple moving average) falls below the 200-day SMA. Death crosses are powerful trading signals defined by the short-term moving average crossing below a long-term moving average, telling investors that momentum is changing to the downside. Though the financial press often labels the occurrence of a death cross as the harbinger of a recession, in reality, it is usually a better signal of a short-term market slump or price correction. Nevertheless, traders are not confined to the 50-day and 200-day moving averages.

Depending on the type of investor or trader, one is usually looked at as more favorable than the other. While an asset is always in one of those two states, neither state can tell us that price is definitively in an uptrend or downtrend. Instead, it tells us that the general conditions based on these two moving averages are currently (or may still be) bullish or bearish. The opposite of a death cross pattern is a golden cross, in which a shorter-term MA crosses above a longer-term MA and is typically considered a bullish signal. The 50-day and 200-day moving averages are those most commonly used to identify a death cross. One common variation of the death signal is a 20-day moving average downside cross of the 50-day moving average.