how does a golden cross form 
the golden cross is a momentum indicator which means that prices are continuously increasing gaining momentum traders and investors have changed their outlooks to bullish rather than bearish the indicator generally has three stages the first stage requires that a downtrend eventually bottoms out as buyers overpower sellers in the second stage the shorter moving average crosses over the larger moving average to trigger a breakout and confirms a downward trend reversal support is a low price level that the market does not allow resistance is a high price level that the market resists a breakout occurs when the price crosses one of these levels the last stage is a continuing uptrend after the crossover the moving averages act as support levels on pullbacks until they cross back down the most commonly used moving averages in the golden cross are the 50 day and 200 day moving averages generally larger periods tend to form stronger lasting breakouts for example the 50 day moving average crossover up through the 200 day moving average on an index like the s p 500 is one of the most popular bullish market signals day traders commonly use smaller periods like the 5 day and 15 day moving averages to trade intra day golden cross breakouts some traders might use different periodic increments like weeks or months depending on their trading preferences and what they believe works for them but when choosing different periods it s important to understand that the larger the chart time frame the stronger and more lasting the golden cross breakout tends to be example of a golden crossthe image below uses a 50 day and a 200 day moving average the 50 day moving average trended down over several trading periods finally reaching a price level the market couldn t support the 200 day moving average flattened out after slightly trending downward prices gradually increased over time creating an upward trend in the moving 50 day average the trend continued pushing the shorter period moving average higher than the longer period moving average a golden cross formed confirming a reversal from a downward trend to an upward one notice that the price range of the candlesticks made a significant jump when the downward trend bottomed out and turned into an uptrend something likely occurred that changed investor and trader market sentiments at this time the candle bodies were large the difference between open and close prices and more days closed with prices much higher than opening during the first uptick after the 50 day moving average bottomed tradingviewthe difference between a golden cross and a death crossa golden cross and a death cross are opposing indicators the golden cross confirms a long term bull market going forward while a death cross signals a long term bear market either crossover is considered more significant when accompanied by high trading volume a possible long term bull market is approachingthe short term moving average crosses from below the long term moving averagethe long term moving average becomes supporta possible long term bear market is approachingthe short term moving average crosses from above the long term moving averagethe long term moving average becomes resistanceonce the crossover occurs the long term moving average is considered a major support level in the case of the golden cross or resistance level in the instance of the death cross for the market from that point forward either cross may appear and signal a trend change but they more frequently occur when a trend change has already occurred limitations of the golden crossall indicators are lagging which means the data used to form the charts has already occurred this means that no indicator can truly predict the future many times an observed golden cross produces a false signal despite its apparent predictive power in forecasting prior large bull markets golden crosses also regularly fail to manifest therefore other signals and indicators should always be used to confirm a golden cross 