What Is a Death Cross in Crypto?
A death cross is formed when a slower-moving average crosses the faster-moving average in the upward direction.
The most popular moving average used by day traders is the 50-day moving average and the 200-day moving average.
The slower-moving average has to cross the faster-moving average from below for a death cross to be formed on the trading charts.
The Three Stages of Uptrend Reversal
The price action of an asset either goes into consolidation or drops sharply after following an uptrend for an extended period.
The consolidation period often indicates that the current uptrend is losing momentum, and a trend reversal can be expected.
During this stage, the 50-day moving average remains above the 200-day moving average.
The second stage is defined when the 50-day moving average falls and crosses the 200-day moving average.
This forms a death cross and is considered a bearish trend of the asset. The third stage is the downfall of the asset’s price
How Accurate Is the Death Cross?
The death cross is usually formed when the price is falling. However, it is not a definitive indicator that the bull market has ended.
There have been many instances when a death cross appeared, but the price only fell slightly, recovered, and broke the previous all-time highs! This is also why financial analysts are divided when setting moving averages to identify a death cross.
Some use the classic 200-day average and 50-day average.
In contrast, others consider the crossover of the 100-day moving average over the 30-day moving average as a reliable indicator of a death cross and the start of a potential bearish trend.
Diversifying Technical Analysis
Using the death cross alone is not a good strategy like every technical indicator.
Financial analysts advise using a variety of technical indicators to understand the price and volume activity from different angles before making a concrete decision to buy or sell an asset/stock/cryptocurrency.
These technical indicators include but are not limited to, accumulation/distribution indicator, on-balance volume (OBV), relative strength index (RSI), moving average convergence divergence (MACD), and the stochastic oscillator.