Golden Cross Trading: How to Make Money by Identifying Trend Changes

In the world of trading, operators are constantly seeking reliable signals to make decisions. There is a technical strategy that has proven effective for years in assets with strong trends: Golden Cross trading. Unlike other techniques that generate false alerts constantly, this tool produces few but valuable market entry opportunities.

How Does the Golden Cross Really Work?

Golden Cross trading is based on the intersection of two simple moving averages (SMAs). When the short-term SMA crosses above the long-term SMA, a bullish signal is generated. The secret to its effectiveness lies in the chosen periods: 50 days for the short-term and 200 days for the long-term.

Why do these numbers work? The 200-period average captures the price behavior over approximately a full year, showing the underlying trend. The 50-day reflects the last two months. When the recent average surpasses the historical one, it indicates that the bullish momentum is genuine and lasting, not just a rebound.

Moving averages are simply the continuous calculation of the average price over a specific period. They help smooth out market noise and reveal the true direction of movement. This indicator works best on daily charts and with assets that maintain stable trends, such as stocks and stock indices.

Why Choose These Two Periods

Some traders experiment with 15 and 50-period averages, but this generates too many false crosses. Each additional cross reduces the reliability of the signal. With periods of 50 and 200, signals are rare but of high impact.

A real example: the S&P 500 experienced its last significant golden cross in July 2020, when it was trading at 3,151.1 USD. Traders who followed this signal saw the index steadily rise, with the 200 SMA acting as a strong support. By January 2022, the price had reached 4,430 USD. With a buy position, the profit would have been 1,278.9 USD in just 18 months, a consistent and sustained return.

During this period, both moving averages behaved as dynamic support points. The 50 allowed for small retracements, while the 200 maintained the integrity of the upward trend.

Practical Application: When to Enter and When to Exit

To maximize gains with golden cross trading, you should monitor assets on a daily timeframe. Set up two moving averages on your analysis platform and watch for the cross. Entry is triggered when these lines intersect with the price in an upward trend.

Strategic exit occurs when the opposite phenomenon appears: the death cross, where the 50 SMA falls below the 200 SMA. In March 2022, the S&P 500 registered this event at 4,258.6 USD, marking the ideal close of the previous position. That exit would have limited losses in the following months.

For short-term traders trying to operate rebounds on the 50 SMA, multiple entry points can be found. However, these carry higher risk because not all support tests result in continuation. In the mentioned case, there were approximately 14 rebound attempts, of which 4 resulted in significant losses.

Improving the Reliability of the Golden Cross

No indicator is infallible, not even golden cross trading. To increase the probability of success, combine it with other tools:

Technical confluences: Look for support/resistance levels that coincide with the cross. In the S&P 500 example, after the July 2020 Golden Cross, Fibonacci analysis was added. The rebound at the 0.618 level and a previous resistance turned support (3,229 USD) provided two additional confirmations.

Extended time analysis: The longer the period analyzed by the averages, the more reliable the data. A 200-period daily average is more trustworthy than a 50-period hourly average.

Asset selection: Prioritize assets with long and sustained trends. Stock indices are ideal because they historically maintain bullish biases. Solid company stocks also perform well.

Consider fundamental analysis: Verify that the issuing company or entity (such as those comprising the S&P500) have positive economic prospects.

The Death Cross: The Other Side of the Coin

Just as the golden cross identifies bullish trends, the death cross signals bearish changes. When the 50 SMA falls below the 200 SMA, some traders interpret this as an opportunity for short operations.

However, this indicator is less reliable in indices and stocks because these markets have a historical bullish bias. A death cross here usually means closing long positions, not initiating shorts. In contrast, in Forex currency pairs like GBPUSD or cryptocurrencies, the death cross produces more effective signals for selling operations.

The difference is notable: in the S&P 500, several death crosses have been misleading, reversing quickly. In contrast, in GBPUSD, they have marked the start of genuine and lasting downtrends.

Final Considerations

Golden cross trading is simple in concept but powerful in execution. It is not a magic formula, but a tool that works within specific contexts. Its greatest strength is producing few signals, reducing the temptation to overtrade.

To implement it successfully:

• Analyze daily charts, never intraday
• Use periods of 50 and 200 days without exceptions
• Wait for confluences before entering
• Keep positions open for months or years
• Understand that each broker charges overnight financing for holding positions long-term
• Remember that a bear market is your ally to wait for the next golden cross

Patient traders who master this technique generate consistent returns without needing to be glued to the screen. Golden cross trading rewards discipline and deep analysis.