What is Death Cross?

The death cross showcases on a chart when a stock's short-term moving average crosses below its long-term moving average.

The 50-day moving average and the 200-day moving average are the most often used moving averages by day traders. For a death cross to occur on the trading charts, the slower-moving average must cross the faster-moving average from below.

The death cross is often formed while the price is falling, nevertheless, it is not a clear indicator that the bull market has finished. Furthermore, there was a scenario in which a death cross emerged, but the price only altered slightly, then rebounded, and then smashed the previous all-time highs.

It is one of the primary reasons why financial experts have different opinions on how to create moving averages to identify a death cross. Some use the popular 200-day and 50-day moving averages, while others see the crossover of the 100-day moving average over the 30-day moving average as a solid signal of a death cross and the commencement of a probable bearish trend.

Furthermore, it is critical to distinguish the major phases of a death cross in order to determine when it is the best moment to exit the market before the bearish trend commences.

The three key phases of a death cross begin with an asset's price movement moving into consolidation or decreasing rapidly after continuing an uptrend for an extended length of time. The stabilization period is often an indication that the present uptrend is losing traction and that a trend reversal is imminent.

During this phase, the 50-day moving average stays above the 200-day moving average.

The second phase starts by marking the precise moment when the 50-day moving average falls and crosses the 200-day moving average. This develops a death cross and can be referred to as the bearish trend of the asset.

The final stage is the asset's price decline, in which the price action falls downward and a downtrend is formed. Typically, the price remains underneath the 50-day moving average after this period.

The death cross has long been seen to be a good forecast of some of the most catastrophic bear markets in history. To be precise, in 1929, 1938, 1972, and 2008. Investors that exited the stock market at the onset of these bear markets averted enormous losses of up to 90% in the 1930s.

Nevertheless, employing the death cross as the lone option isn't always a wise idea. Thus, financial professionals recommend using a number of technical indicators to learn about price and volume behavior from various viewpoints before deciding whether to buy or sell a cryptocurrency, asset, or stock.