Alright, everyone. I apologize for delving into technical analysis again, but I thought I would teach one more highly effective and powerful indicator. I’ll keep this brief because, after years of dismissing technical analysis, it feels ironic to be discussing it now. But trust me, this is worth your attention. It’s simple and effective.
What is the “Golden Cross”?
Last week, we covered the concept of the “Moving Average.”
“Moving averages smooth out price data over a specified time period to help identify the trend direction and reduce the impact of price volatility. They are calculated by taking the average price of a security over a set period, such as 50 or 200 days, and are frequently used in technical analysis to gauge market momentum.”
To set up the Golden Cross, you need both a 50-day Moving Average and a 200-day Moving Average.
When the 50-day Moving Average crosses above the 200-day Moving Average, it signifies a significant event. This crossover indicates that short-term momentum is outpacing long-term momentum, suggesting increasing buyer interest and potential upward price movement.
In simpler terms, when the 50-day line crosses above the 200-day line, it signals a potential upward trend in the stock price.
Implementing the Golden Cross in a Chart
Inputting this into a chart is very straightforward, and any charting program should allow you to input a 50-day and 200-day Moving Average. Some platforms even have a Golden Cross preset.
Trading View’s indicators section has plenty of presets available.
Advanced Strategies
To refine your strategy, use the Golden Cross alongside other bullish indicators to increase your chances of finding a winning stock. Here are two additional indicators to consider:
- Unusual Trading Volume: Look for stocks with trading volume 50% or more above their daily average.
- Low Float: Focus on stocks with fewer than 30 million shares outstanding.
If you find a stock exhibiting abnormal volume on the day of the Golden Cross and it has a low float, you could be in for a significant move.
Conclusion
While these indicators are powerful, they should only be used on companies you are fundamentally bullish on and understand. Blindly trading based on these signals can lead to losses.
If you prefer not to chart this yourself, you can use a scanner to automate the process. There are several scanners available, but this one is free and user-friendly – Stock Scanner.
Disclaimer: This is not financial advice.
