Key Takeaways:
- The death cross is a price movement pattern often used to indicate bearishness in the future.
- The way to find a death cross pattern is if the 50-day moving average (MA) intersects with the 200-day MA and forms a descending pattern.
- The pattern that is inversely proportional to the death cross is the golden cross. Where this pattern also uses a moving average as a bullish indication.
The death cross is a pattern that you can find in crypto candlesticks. So, what does the death cross pattern on a crypto price chart mean? Find the answers below!
Technical Analysis at A Glance
Before we learn more about what a death cross pattern is, let’s talk about technical analysis at a glance to help you to understand more about the death cross pattern. Technical analysis is a method of market analysis based on market activity and price movements of an asset using various indicators. In technical analysis, multiple types of patterns usually have different meanings for each pattern. Technical analysts use many patterns to determine current market conditions and future price movements.
The Death Cross pattern is one of the patterns found in technical analysis theory. Below you can learn more about the death cross crypto pattern and how to find it.
What Is a Death Cross Crypto Pattern?
A Death Cross pattern is a pattern that reflects a price decline in a specific period. This pattern refers to a moving average, where the 50-day moving average crosses the line of the 200-day moving average. The circumstance of this pattern could mean there will be a long-term downward price swing.
Generally, the death cross pattern is often used to signal that a bearish market will occur, especially after a 20% or more market loss. However, its historical track record explains that the death cross is an indicator that is only used when there are signs that market conditions will decline.
What Is a Moving Average?
The moving average (MA) is one of the indicators to analyze crypto price movement by determining an asset's trend direction or making it easier for traders to identify support and resistance levels.
As an indicator, MA calculation refers to the average price of a particular asset over a certain period. The MA shows whether the asset is trending in a positive or bullish direction or moving in a negative or bearish direction. A clear understanding of moving averages (MA) is essential to help you learn the death cross pattern easier.
Example of Death Cross Pattern
To make it easier for you to understand the death cross pattern, here we show an example of the death cross pattern along with an explanation below.
If we look at the Bitcoin price chart above, we can see that the 50-day moving average (MA) intersects with the 200-day MA. After the death cross pattern formed, the price of Bitcoin went through a deep decline in price.
Death Cross Pattern vs Golden Cross Pattern: What Are The Differences?
The golden cross pattern is a pattern that occurs when the 50-day moving average crosses the 200-day moving average by forming an upward pattern. This pattern is very different from the death cross pattern, where the death cross pattern forms a downward pattern.
The main difference between these two patterns is that the death cross pattern indicates that the market is experiencing a bearish market. Meanwhile, the golden cross pattern suggests the arrival of a long-term bull market. However, despite their obvious predictive abilities in foreseeing significant increases or decreases in advance, both patterns can generate false signals.
What Should Traders Do When The Death Cross Pattern Happens?
Golden and death crosses can be used as trend-reversal signals. If traders see a golden cross forming, they will probably buy the asset in anticipation of a price increase. Likewise, if a trader sees a death cross forming, they may sell the asset in anticipation of a price drop.
But remember that every trader has a different approach to the indicators that appear on the crypto price charts. Some traders may wait for a confirmed pattern before entering or exiting a trade. Meanwhile, other traders may use this and different patterns as confirmation signals.
