- Date : 04/11/2022
- Read: 4 mins
Golden crossover strategy is based upon the moving average of a security and involves purchasing a security during an uptrend.
Formulating an effective strategy is essential to earn huge profits in the financial market while ensuring that the risks are minimized. An investor must study the historical data of the financial market to understand trends and foresee the direction of the market. One of the most important strategies based upon the trends in the market is the Golden Crossover Strategy. Read on to understand the Golden Crossover Strategy, the different stages of the strategy and how to utilize it.
Also Read: Making money through Forex trading!
What is a Golden Crossover Strategy?
A moving average is a technical indicator which depicts the average price of a security for a certain timeframe. The common timeframes for moving average are 10 days, 15 days, 20 days, 50 days and 200 days. A “10 day” moving average depicts the average price of the financial security in the past 10 days.
Golden Crossover Strategy incorporates keeping an eye on the moving average for a financial security. A short time moving average can be impacted by the factors in the market since it is based upon recent price of the security. On the other hand, a long-time moving average will not be impacted by the factors in the market as it has been devised over a long period.
The strategy comes into action when the short time moving average of a financial security becomes more than the long-time moving average. This indicates that the price of the security will continue to increase, and it is the beginning of an uptrend.
Predicting the uptrend from the moving average of the financial security can allow the investor to purchase the security at the right time and a lower price to sell it for profits when the price increases. This strategy is based upon historical data of the market and is reliable in terms of accuracy.
Stages of Golden Crossover Strategy
A Golden crossover is a technical indicator since it represents an uptrend based upon the historical data of the financial security. A golden crossover has 3 main stages which form the basis of the strategy:
- The first stage is a downward trend in the price of the security. This downward trend comes into an end as the supply of the financial security starts to decline.
- In the second stage the short time moving average crosses above the long-term moving average which indicates the beginning of an uptrend.
- In the third stage, the uptrend is moving ahead, and the price of the financial security keeps on increasing.
How to use Golden Cross over strategy?
Golden Cross over strategy involves observing the historical data for financial securities and analysing it to make investment decisions. The strategy incorporates various steps which must be kept in mind to ensure it is correctly executed:
- The investor must look for patterns - The strategy is based upon the patterns in the price of a financial security. In order to determine the application of the strategy, an investor must look for patterns in the changing market price.
- The investor should utilize trendlines - Trendlines are essentially straight lines which connect the price points of the financial security. Trendlines can be used to predict the future price points and can help the investor apply the Golden cross over strategy.
The Golden cross over strategy is based upon data from the market. It can be considered reliable and highly profitable but only when implemented correctly. An investor must observe the patterns in market price of the securities and trendline to utilize the strategy.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.