Death Cross (Death Intersection) model is a term frequently used in the investment world. It indicates a major trend reversal in the stock and index. It helps traders to see long and short term trends and predict whether prices will enter a bearish phase.
How to use the Death Cross in investment?
Technically, a Death Cross is a negative transition of the short-term moving average to the long-term moving average. To determine the Death Cross line in investments 50-day moving average (DMA) and 200-day moving average are taken into account.
The key to the Death Cross is that it shows a very strong sell sign. In other words, the emergence of the Death Cross model can lead to serious selling pressure. In this case, the share price may be below expectations for a month to a year.
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The Death Intersection model basically takes place in three stages. First of all, the purchasing speed of the investment vehicle should decrease and the uptrend should end. Then the number of people selling should gain the upper hand in the market and start lowering the price.
The second stage occurs when the short-term average falls below the long-term average. The 50-day moving average falls below the 200-day moving average and retraces to the Death Cross point. This drop of the 50-day average could initiate a long-term bearish trend in the market.
In the final stage, the downward price decline accelerates and a true Death Cross is considered to have occurred.
Invest in Death Cross?
With the emergence of the Death Cross, the investment vehicle a long-term decline predicted to enter. However, it is known that the Death Cross can be misleading if the investment vehicle breaks the decline in the short term and starts to rise again.
To see if Death Cross is reliable look at trading volume must. If it is realized with high transaction volume, it can be said to be reliable. High trading volume indicates that investors are selling.
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