Definition — what the “death cross” is
– A death cross is a simple technical-chart signal that occurs when a shorter-term moving average falls below a longer-term moving average. Moving average: the arithmetic mean of recent closing prices over a fixed number of trading days.
– The standard pair used by many market participants is the 50-day moving average (shorter) and the 200-day moving average (longer). When the 50-day moves below the 200-day, that chart pattern is called a death cross. It’s commonly interpreted as bearish — evidence that recent price momentum has weakened relative to a longer-term trend.
How traders use it (intuitively)
– The signal communicates that recent price action is worse than price action over a longer span. That can reflect fading momentum after an uptrend or continuing weakness inside an already declining market.
– The reverse pattern — the short-term average moving above the long-term average — is called a golden cross and is viewed as bullish.
Step-by-step checklist to identify a death cross
1. Choose the series and timeframe: typically daily closing prices for a stock, index, commodity, or crypto.
2. Compute the moving averages: set a short MA (e.g., 50-day) and a long MA (e.g., 200-day).
3. Confirm the cross: the short MA must be above the long MA on one day and below it on a later day — the crossing day is the death cross.
4. Check volume and price context: is the market falling into the cross with elevated volume and widening breadth, or is the move on light volume?
5. Review prior price decline: crosses following a large drop (for example, a 20%+ fall) may signal a deeper bear regime; crosses after small pullbacks may simply mark a correction.
6. Cross-validate with other indicators: momentum (RSI), trend (ADX), or fundamentals to reduce false signals.
7. Avoid acting solely on the cross — use it as one input in a broader plan.
Worked numeric example (small-scale analogy)
– To show mechanics without computing 50- or 200-day averages, substitute smaller windows: a 5-day MA vs a 20-day MA. This is conceptually identical.
– Suppose the 20-day MA yesterday was 100.0 and the 5-day MA yesterday was 101.0 (short MA above long MA).
– Prices then fall. New 5-day average after