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A lot of people have asked me about the ‘death cross’ that is allegedly supposed to happen on the 1D Chart.
Here’s a picture for those that don’t know what a death cross is:
In the example above, you see the death cross is defined by the 100 MA > 50 MA. However, the death cross is typically marked by the 200 MA > 50 MA. This is what most of the articles that are referring to the event are talking about as well.
For those that don’t know, this is a concept that was discovered in the ‘traditional’ financial markets through pure observation. Traders noticed the strong correlation between a following rise (golden cross) and decrease (death cross), when these two EMA indicators cross each other.
So, this is what the EMA50 and EMA200 look like currently on the bitcoin chart. The EMA50 is the golden line and the EMA200 is the burgundy line. At the time of writing, the cross has not happened with the EMA indicators.
This has been something that people have spoken about a lot in the past few days/weeks and a couple folks have asked me.
1.) “Didn’t the death cross happen already?” Yes, on the regular MA (I believe). Since Bitcoin’s rise has been so parabolic, I believe that simply using the Mas aren’t as effective because the 200-day MA will include that meteoric price increase at the end of December 2017 and hang that up disproportionately to everything else.
I think that the EMAs (exponential moving average) are better because they place more weight on recent data, which is something I think is needed for bitcoin specifically.
2.) The impact of a death/golden cross is never immediate. In the traditional markets, it can take up to a year before the ‘impact’ of the golden/death cross is truly felt. Check out this Investopedia article on it: https://www.investopedia.com/terms/g/goldencross.asp
3.) MA indicators unanimously are always backward looking. So, they are just telling us information about price data in the past. They are not leading indicators. The death/golden cross is not a forward predictor. It’s an indicator about price data that can help traders because it indicates that the selling/buying pressure is heavy to x degree. It’s significant because we know that when the buying/selling pressure is heavier in the last 50 periods than it was in the last 200 periods combined, there is typically a continuation of the trend overall.
However, it’s not permanent or guaranteed!
4.) The cross needs to be definitive, check out some examples below to see what I mean:
This occurred in 2014 with bitcoin. Same time period, same EMA indicators.
I’ve mentioned this before, but MA crosses aren’t great indicators in a choppy market.
They only hold significance in a trending market
You may think “But bitcoin has clearly been moving downward!” This is true when thinking of its overall direction. However, in terms of actual price movement, it’s been up and down, up and down — lots of whipsaws. EMA indicators get murdered in sideways trading/choppy markets. This will always be a fact.