Golden cross patterns occur in three stages: stage one occurs at the end of a security's downturn, signaling the completion of a sell cycle. Stage two is the crossover of the short- and long-term moving averages, followed by a trading breakout. The final stage sees the security continue its upwards trajectory, with accompanying price increases. Eventually, a pullback occurs, leading to a golden cross' inverse – the Death Cross. Golden crosses
can be composed of variable moving averages, from minutes- to months long. Longer time periods typically equate to more sustained breakouts. 50-day short term and 200-day long term periods are most common for their ability to remove daily volatility from the equation, painting a more accurate picture of a security's trajectory.
Day traders will use shorter windows of time, evaluating moving averages throughout a trading day to identify and trade golden crosses – 5-period and 15-period moving averages are common for their purposes. Traders use momentum indicators like moving average convergence divergence (MACD)
and relative strength index (RSI
) in conjunction with golden crosses to gauge ideal times to buy in or sell off security.
For all their popularity, no golden cross is 100 percent reliable – a golden cross in unstable market conditions will not always result in a bull market, especially for single equities. Research indicates short-term gains may emerge but can be less substantial – around 1.31 percent for the 30-day period post-golden cross. 12-month average gains, however, were found to be around 11 percent.