[Priority Exclusive] Understanding Death Cross and Golden Cross in shares.
Death Cross and Golden Cross
Most commonly used words in technical term in reference to the stock market for long term investors. Death Cross and Golden cross are terms that are related to Moving Average strategies.
Understanding Moving Average
Moving Average is a most commonly used Indicator during Technical Analysis. It is a lagging indicator, because it is based on past available data.
There are 2 commonly used Moving Average.
- Simple Moving Average: It is the simple average of a stock price over a said period of time. For example: SMA (7) of a stock means Simple average of a stock for last 7 days. It gives an indication about the average price at which the stock was bought for last 7 days. If SMA (7) is higher than the current stock price, it means on an average investors who bought the stock in last 7 days are in losses and vise-versa.
- Exponential Moving Average: It is almost similar to SMA. Here the weightage to the stock price in recent days is more. It makes more sense that the EMA stays closer to the stock than the Simple moving Average. EMA is commonly used for Technical Analysis than SMA as emotions of the investors in recent times weigh more than an investor invested quite a while back in the same stock. I will not go deep into the formula.
Moving average form the basis of the most commonly used MACD indicator (Moving Average Convergence Divergence).
Moving Average Indicator
As said, Moving Average is based on past value of the stock and is called as a lagging indicator. Longer the Time frame, longer the lag.
Moving average Breakouts
If stock price is below 50 day moving average, the stock is said to be bearish for short term and viseversa.
If stock price is below 200 day moving average, the stock is said to be bearish for long term and viseversa.
Moving Average Self Signals
As the moving average continues to rise or fall continuously, it is said that the stock is in uptrend or downtrend respectively.
Moving Average Crossover
Moving Average crossover happens when a Moving Average with a time frame crossover Another Moving Average of Different time frame.
When a smaller time-frame Moving Average crosses above a larger time-frame Moving Average it is said that the stock is in Bullish Momentum.
Similarly, When a small time-frame Moving Average crosses below a larger time-frame Moving Average it is said that the stock is in Bearish Momentum.
When 50 Day Moving Average Crosses above 200 Day Moving Average it is called Golden Cross.
When 50 Day Moving Average Crosses below 200 Day Moving Average it is called Death Cross.
Trading or Investing tips with Moving Average Indicator
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