Golden Cross and Death Cross

One of the simplest trading strategies in existence.

You should not expect incredible profitability or win rate from them. But there is a huge category of traders who use these mechanics as part of their main trading strategy or analysis.

Although following the majority in trading is not a good idea, lacking in knowledge is even worse. Therefore, today we will take a closer look at these two strategies and see if they are worth using.

Golden Cross Strategy Rules

The strategy is based on moving averages. To be more precise, on the exponential moving average with a 50 period (EMA 50), and a simple moving average with a period of 200 (SMA/MA 200). The most suitable timeframe for this strategy is 1D. The meaning of the strategy is simple: when the fast line (EMA 50) crosses the slow line (MA 200) from the bottom up, you need to buy an asset. And keep until the fast one crosses the slow one from below. The crossing from above is called the death cross, and the crossing from bottom to top is called the golden cross, respectively. When forming a death cross, you can open shorts, and hold them until the end of the formation of the golden cross. Everything is so simple =)

Pros and cons of this strategy

The advantage is the extreme ease of use. Even a child can figure out how to use this strategy. It fits perfectly as the first TS in a trader’s life and can be improved in the future.It is suitable for beginners who want to move away from investments and feel like a trader. But in the end, it will require improvements to increase the efficiency of earnings. The disadvantages, in turn, can be recorded as a return that does not overtake investments, too simple logic, and fully implemented automation. Over time, the trader will have to significantly refine this strategy, or change it completely to earn a return higher than the investment one on an ongoing basis.

Backtest

Let’s see the development of such a strategy on the 4h timeframe on Bitcoin, and analyze the results.

Orange line – EMA, Blue line – SMA.Green line – buy, Red line – Sell.

A month of holding a position for the sake of breakeven

This is where things got really bad. 3 / 3 transactions are in the red. However, this does not speak for the quality of the strategy. You can choose an asset and timeframe on which the strategy will work, and it will work well. The main thing to remember is that the strategy must be analyzed at a distance, with the help of statistic analysis. Based on four transactions, it is impossible to conclude any case.

Conclusion

If you cannot decide on a strategy to start trading, the golden cross and death cross strategy can give you a ticket to the world of trading. And even though it is not an ultimatum strategy, on its basis you can build amazing strategies with amazing earnings. The golden cross is a great pattern. This does not mean that you need to trade every manifestation of it. After all, it is vital for a trader to wait. Wait for a suitable situation, the necessary work, or entry into a position.You may decide to combine the golden cross strategy with another. This can be a great solution with the right choice of the second strategy because increasing the win rate has never bothered anyone.