What is a sign of a stock that investors are bullish about? It is the Golden Cross in the stock price chart.
If you follow the news, you must have heard about the Golden Crossover Strategy (the bullish breakout pattern)
And that’s what you’ll discover in-depth, today.
In this blog post, learn about the benefits, risks, and steps for implementing the golden crossover strategy as you determine when to enter or exit an asset.
Introduction
The Golden Crossover strategy is a simple yet effective trading technique that both novice and experienced traders can use. The idea behind the approach is that the market has the propensity to repeat itself and that it is possible to identify a unique golden cross pattern that can be used to forecast future market moves.
The Golden Crossover strategy is based on the moving average convergence divergence (MACD) indicator. The MACD is a momentum indicator that measures the difference between two exponential moving averages (EMAs). The MACD line is the quicker EMA minus, the slower EMA. A signal line is created by plotting a nine-period EMA of the MACD line.
The strategy involves waiting for the MACD line and the signal line to crossover. When this happens, it signals that a change in trend is perhaps about to occur. Prices will likely rise if the MACD line crosses above the signal line. Conversely, if the MACD line crosses below the signal line, it suggests that prices are likely to fall.
The key to the successful use of this strategy is timing. It is essential to enter a trade at the right time to maximize profits and minimize losses. This can be done by using other technical indicators, such as support and resistance levels or Fibonacci retracements, to confirm the signal generated by the MACD crossover.
How does the Golden Crossover Strategy Work?
The Golden Crossover Strategy is a simple but effective technical indicator that can identify potential buy and sell signals in the market. The tactic is based on the intersection of two moving averages, determined by the closing price of a share over time for a specific period.
The most common periods for moving averages are 50-day and 200-day moving averages, although other variations can also be used. It is a positive indication that prices would climb further when the 50-day moving average increases above the 200-day moving average.
On the contrary, it is seen as a negative indicator, suggesting that prices are expected to decline when the 50-day moving average surpasses the 200-day moving average. The Golden Crossover Strategy can be applied to any time frame and asset class, making it a versatile tool for traders and investors.
What are the advantages of the strategy?
The Golden Crossover strategy is a simple and effective way to trade the markets. It is based on the crossover of two moving averages, which can be used to identify trend changes and potential entry and exit points.
The essential advantage of this method is its simplicity. It can be easily applied to any market and any timeframe. Additionally, the moving averages can be customized to suit your trading style.
Another advantage of the Golden Crossover strategy is that it is relatively easy to interpret. A buy signal is generated when the faster moving average crosses above the slower moving average, while a signal to sell is generated when the reverse happens. This makes it an excellent tool for new traders who are still learning to read charts and identify trends.
Finally, the Golden Crossover strategy can be used with other technical indicators to improve its accuracy further. For example, adding a momentum indicator can help confirm trend changes before they happen, allowing you to get into trades earlier and avoid false signals.
Top Stocks picked using Golden Crossover strategy
Here are some stocks that can be selected using the Golden Crossover strategy to help you understand how to use it:
- ITC
ITC is a market leader in India’s Fast Moving Consumer Goods sector. It has a diverse sustainable business that includes cigarette manufacturing, hotels, paperboards, packaging, personal care products, and so on.
Because of its low-cost manufacturing process, efficient distribution networks, and strong research and product development, the company dominates the industry.
- Paisalo Digital Ltd
The company is involved in a variety of businesses, including the financial services division, which buys and leases automobiles and provides personal and business loans. It is also registered with the Reserve Bank of India as a non-deposit-taking NBFC in category ‘B.’
The company also has a microcredit division that provides loans to low-income households. Finally, they have a presence in the alternate energy sector, where they own a 0.8 MW Enercon WEG in Jaisalmer, Rajasthan.
- Escorts Limited
In India’s engineering sector, where it provides services in agriculture, infrastructure, and railways, the company has a king-sized status.
Its agricultural division sells tractors starting at 12 HP under the Farmtrac, Powertrac, and Steeltrac brands. The company provides construction equipment and is one of the world’s largest manufacturers of Pick and Carry hydraulic mobile cranes under the infrastructure heading.
That’s not all, people! Under its Railway Equipment Division, the company also manufactures advanced components for brake systems, couplers, suspension systems, and shock absorbers.
When should you use this strategy?
Using the Golden Crossover strategy is most effective when a trader wants to take a long-term position in a stock. This strategy can buy and hold stocks for many months or even years.
The Golden Crossover strategy is based on the 200-day moving average of a stock’s price. This moving average is used as a long-term trend line. When the stock price crosses this line, it is considered to be in an uptrend. Conversely, when the price crosses below this line, it is considered to be in a downtrend.
Traders who use this strategy will typically buy a stock when its price exceeds the 200-day moving average and sell it when it goes below this average. This simple rule can help traders profit from both short-term and long-term trends in the market.
There are many other ways to interpret and use the 200-day moving average. Some traders may use it as a strict buy or sell signal, while others may use it as a more flexible guide for their trading decisions. No matter how you use it, understanding this critical technical indicator can help you become a more successful trader.
Conclusion
The golden crossover strategy is a great way to improve your investment portfolio. By diversifying your portfolio and investing in growth and value stocks, you can minimize your risk while still having the potential for high returns.
Investors of all levels of experience can use this strategy, so if you’re looking to take your investments to the next level, the golden crossover may be right for you.
