Bitcoin’s death cross — is it really that bad?

The death cross is a bold term indicating a trend reversal in bitcoin from bullish to bearish. There have been very few such events in the history of bitcoin, but each time they attract the attention of many traders eager to see what this indicator leads to. Today we will talk about the peculiarities of the death cross and the possibilities of benefitting from trading the pattern.

What is a “death cross”?

A death cross is an intersection of two moving averages (MA) based on different time periods. A moving average is a line, which shows the average price of an asset over a certain period of time. In this case, the death cross most often means the intersection of the 200 day MA and 50 day MA on the one-day chart.

Utilizing the death cross

The most obvious way to benefit from the death cross is to open a short position after the cross occurs on the chart. You can then close the short position either at levels that are determined based on the support lines or after the golden cross occurs. A golden cross serves as a confirmation of a bullish trend.

Death cross vs. golden cross

The golden cross is the intersection of moving averages of the same time periods (50 and 200), but in the opposite direction. In this case, the 50 MA crosses the 200 MA in an upward direction. The golden cross provides confirmation of the long-term uptrend. The chart below shows the BTC/USD trading pair on Coinbase. The first golden cross on the scale of the 1-day chart here took place on October 28, 2015 and is marked with a green circle.

Death crosses on the bitcoin chart

The aforementioned 8,000% rise peaked during the 2017 bitcoin bull run. As we’ve mentioned above, the death cross is a lagging indicator, so if we calculate the potential profits from the golden cross of 2015 to the first death cross of 2018 (trend reversal confirmation), we will end up with a 3,590% price rise as the trend reversal was confirmed at a price of $9,375.

What’s next?

The death cross signal might not be false after all. In this case, the market can expect a prolonged bearish trend in the coming months if we compare it with the same situation in early 2018. Bitcoin is already down nearly 50% since setting its last all-time high, but if a new global bearish trend begins, most of the downtrend is still ahead. Still, without enough long-term data, it’s unclear whether this death cross will result in the aforementioned bearish trend.

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