There are many different strategies, tactics, indicators and scripts in crypto trading. Traders might even get lost in all this variety of technical tools. Sometimes an overabundance of instruments does not help at all, it might be confusing, especially at the beginning. However, there are basic fundamental principles that no qualified trader can live without.
Trying to follow the movements of cryptocurrency rates is a very tricky, but extremely important thing in the Crypto World. Analysts “scan” the digital economic space, particularly during periods of high volatility, to identify the slightest shifts in the direction of growth or decline of an asset. Based on this data, crypto forecasts are made, which are used by traders and investors.
Cryptoanalytics is based on studying the cryptocurrency market and working with different indicators on it. There are a number of factors that help to predict bullish or bearish trends, for instance. They allow entrepreneurs to come up with better strategies. One of such indicators is the “death cross”.
What is a death cross?
This pattern appears from the cross of two Moving Average (MA) lines – short-term and long-term. The MA is one of the simplest and most basic indicators. Mathematically and statistically, a moving average is a function derived from some other function that smooths out peaks and averages values. By itself, the moving average is already a good way to figure out where prices are moving.
Often, random fluctuations make it difficult to understand what is happening in the market — and the moving average clears price fluctuations. This indicator shows the average value of the asset price in a specific period of time set by the trader. It detects the presence of a trend and helps to trade in it. If the short-term MA is below the long-term one, they will form an intersection that looks like an “X” sign – the death cross.
Why is the death cross dangerous for the crypto market?
When the death cross appears on charts, it warns us about possible negative events on the crypto market. This pattern tells us that a bearish trend is coming. Some analysts, after seeing a death cross, immediately announce the collapse of the crypto industry. It has not yet been confirmed, but there is a high possibility of it – long-term forecast is a more complex system than just a direct pattern following.
On the cryptocurrency market the death cross was observed in 2020, after the collapse of Bitcoin (BTC) in March. This led to a decrease of the crypto market by 60%. In 2021, there was also a death cross, when Bitcoin price fell after its successful recovery.
Everyone was afraid of another death cross on Bitcoin charts in 2022. Analyst Lark Davis wrote on Twitter that this will be the 9th "death cross" in the history of coin. The death cross pattern indicates a long-term decline in price, that's why traders were very nervous at that time.
Analysts about the death cross
The death cross is one of the most accurate signs of the downtrend on the market. It can be supported by other technical indicators, such as trading volume. In tandem with high volumes, death cross predicts long-term trend change.
Some crypto experts advise to rely on this indicator with caution. The short-term MA may intersect the long-term MA after the moment when the bullish trend is replaced by a bearish one. The price of assets has already fallen, but the signal about this has just occurred. However, historical analysis of the finance and crypto market has proven that the death cross has successfully predicted major price declines.
Conclusion
Technical analysis is a method used by traders to evaluate assets and make investment decisions based on the study of past market data and trading volume. It is used to identify patterns in market behavior, predict future price movements, detect trends, etc. One of such indicators is the death cross. It is a convenient pattern that helps traders visually evaluate the current situation on the market and come up with a strategy for the future.
If you want to learn more interesting facts about crypto then check out our blog! You might like our articles “If I Hodl, When Do I Stop?” and “Stop Loss And Take Profit”.
