Bitcoin and S&P 500 Bullish Golden Cross Signal: What does this mean for crypto?

[TL; DR]

The golden cross occurs when a 50-day moving average crosses above the 200-day moving average.

In most cases, a golden cross is followed by a long period rally.
The death cross is an opposite of the golden cross and occurs when the 50-day moving average crosses below the 200-day moving average.

Traders often open long positions when the golden crossing appears, especially if there is confirmation from other indicators.

Introduction

Most cryptocurrency traders rely on technical analysis indicators to make trade setups such as going long or short. One of the favourite types of indicators is the moving average (MA) which includes the simple moving average (SMA). Importantly, moving average indicator crossovers are a great source of bullish and bearish trading signals. This post looks at the golden crossover, a long term signal associated with bullish market momentum.

S&P500 and BTC bullish crossover

The traditional financial market has shown stronger bullish momentum than before since the S&P500 generated the bullish golden crossing on 2 February 2023. In fact, the S&P500 is one of the most popular stocks on the traditional market. The last time this Index had a golden crossing was on 9 July 2020 when it was trading at $3,160.

In that case, the golden cross was a confirmation of the continuation of the Bull Run following a short time crash of the market as a result of the Covid-19 pandemic.

After that golden cross pattern, S&P500 price rose significantly to register an all-time high (ATH) of $4,818 on 4 January 2022. Sadly, the bear market of 2022 followed that bullish market. Note also that the bear run of the traditional market ended during the last days of 2022.

The recent gold cross could mark the beginning of another bull market. Significantly, it occurred after a successful breakout, with the price approaching the $4,300 resistance level.

BTC Golden crossing

After the price of Bitcoin has risen by over 40% since the beginning of the year, it is most likely that a BTC golden cross will appear within the next few days. The fact that BTC has maintained a close correlation with stocks such as S&P500, creates a strong possibility of a golden cross pattern considering that S&P500 recently recorded one.

The emergence of golden crosses for BTC and S&P500 is good news for trend-following traders to open new bids to capture the trend from the very beginning. However, it’s worth noting that some of the golden crosses do not result in large and long term rallies.

What is a golden cross?

In order to understand what the golden cross is, let’s explain what a moving average is. The moving average is an average of closing prices of an asset for a period of time. For example, a 50-day moving average is the average of the closing price of the cryptocurrency for the past 50 days. This average changes on a daily basis since a new closing price is added to the calculation every day while the oldest one is dropped.

Similarly, there is also a 200-day moving average which is derived from the closing prices for the past 200 days. A golden cross occurs when the 50 day simple moving average crosses above the 200-day one, as indicated on the following chart.

Golden Cross- BeinCrypto

As observed, the blue line is the 50-day MA and the black one is the 200-day MA. When the 50-day MA, which is normally the lower one, crosses over the 200-day MA a golden cross occurs.

Past history of the Golden Cross for S&P500 and BTC

Both the S&P500 index and BTC have experienced many golden crosses oftentimes. The BTC golden crosses of February 2012, October 2015 and May 2020 resulted in price increases of between 100% and 350% which lasted for over one year. The last time that Bitcoin had a golden cross; its price increased by 45% and reached an all-time high of $69,000 in 2021.

On the other hand, the golden crossings of July 2014, July 2015 and February 2020 did not rally as expected since they were mere bull traps. This is because Bitcoin experienced death crosses resulting in violent crashes within a few weeks/months. The death cross occurs when the 50-day moving average crosses below the 200-day one.

On the other hand, the history of S&P500 golden crosses stretches back to the 1930s. In fact, it has experienced more than 50 golden crosses since that time. The following table summarizes the S&P golden crosses that occurred since 1975.

S&P500 Golden crosses- Dailyforex

In all, 22 of the above golden crosses resulted in a 63.44% trade win rate and an average return of 19.65%. As stated previously, some of the golden crosses had low total return and annualized returns. These are the ones with figures written in red on the table.

Read also: Guide to Double Moving Average Quantitative Strategy

The significance of the golden cross

The golden cross shows that the short term gains of the cryptocurrency are higher than the long term ones. It also signals a high possibility of a rally in the near future, a reason why many traders open long positions.

Usually, most traders enter long positions as soon as the golden cross appears and exit them when the 50-day moving average recrosses below the 200-day one. Such a trading strategy enables them to ride the trend for a long period. However, it is important to enter and exit the trades upon confirmation of the trends from other technical indicators such as the relative strength index and MACD.

It is also important to note that, at times, fake golden crosses can appear which last for a few days or weeks as the price of the cryptocurrency drops significantly after the first spike.

Fake golden cross- CoinMarketCap

The above diagram illustrates a “fake” golden cross that occurred in February 2020. After about a month the 50-day moving average recrossed below the 200-day moving average.

Conclusion

The bullish golden cross is one of the long term price indicators you can think of. It occurs when the short term moving average crosses above the long term moving one. In most cases, a golden crossing is followed by a long period of an uptrending market. Upon getting confirmation from other indicators, traders open long positions when the golden cross appears.

FAQs about the golden cross

What is the golden cross in trading?

A golden cross occurs when the 50-day moving average crosses above the 200-day moving average. This is a signal of a bull market, a situation where the price of an asset rises for a long period.

Has Bitcoin had a golden crossing?

Bitcoin had several golden crosses which resulted in significant price increases. For example, it had golden crossings in February 2012, October 2015 and May 2020. The last BTC golden cross pushed its price to an all time high of $69,000 in 2021.

Is a golden cross pattern bullish?

By nature the golden cross is a bullish signal that shows that the short term gains of an asset are more than its long term ones. Many traders open long positions when the golden crossing appears.

What is the golden cross trading strategy?

With the golden cross trading strategy, traders go long when the 50-day moving average crosses above the 200-day one. On the contrary, the traders exit the trade when the 50-day moving average recrosses below the 200-day one.