Compared to the Golden Cross, the downside of the Death Cross is that it involves crossing the MA. This indicates an actual market failure and usually occurs when the short-term MA trends downwards and the long-term MA trends downward.
Simply put, it is the exact opposite of the Golden Cross. The cross of death is often read as the symbol of the bear. The 50-day MA typically crosses below the 200-day MA, indicating a downtrend.
Three steps represent the cross of death. The first high period is when the short-term MA is still above the long-term MA. The second phase is characterized by a reversal, in which the short-term MA crosses below the long-term MA. This is followed by a bearish start by staying below the long-term MA as the short-term MA continues to move downward.
Like golden crosses, no two death crosses are the same, but certain indicators indicate their occurrence. Here’s a detailed look at each level of Death Cross. The first stage of the death cross is usually marked by its presence on property. This is followed by a weakened 50-day MA, the first depression may be on the horizon. Short-term MA differs from long-term MA when prices start to decline after a high.
The second step involves crossing the 50-day MA below the 200-day MA. This is a key point, because the asset may be entering a downward trend. As the price continues to decline, the difference between the two MAs becomes more pronounced. The cross of death clearly begins to form at this stage.
The last level was marked by a move below the 50-day MA followed by a stay below the 200-day MA. This indeed shows a downward trend. A death cross leads to further selling pressure as traders liquidate their positions in anticipation of further price declines.
However, if the downward trend does not continue, the speed is short-lived and prices are growing rapidly, in this case, the death cross is considered a false sign.