School Corner
Two important indicators to look for in technical analysis are what are known as the golden cross and dead cross. The former is when the 50 day moving average cross up through the 200 day moving average (and the price is above both) — this is considered to be an indicator of a medium - long term bull trend. A dead cross is when the 50 day cross down through the 200 day moving average and price is below these.
Below is a chart of Gulf Keystone that shows 2 golden crosses and one dead cross.
What you can find happens, on many occasions, is that a golden or dead cross will form, only to be negated by the price action in ensuing weeks — this has, in fact, wrong footed technicians on the major stock markets twice over the last 2 years where dead crosses occurred.
As with most things in the markets, nothing is certain and there is no holy grail to profitability, and so the golden and dead cross should form part of the overall technical picture and not be the primary reason for the trade.
24 | www.financial-spread-betting.com | June 2012