What Is a Death Cross?
A death cross is a chart pattern reflecting an asset’s price weakness in reference to the drop of its short-term moving average (MA) price below its long-term moving average price. An MA is the average price of an asset over a set period of time.
Traders commonly use the 50-period moving average against the 200-period moving average as an indicator of the short- and long-term moving average, respectively. Hence, a swing trader may choose to use the 50- and 200-period of a five-minute chart, while a day trader may choose to use a one-hour chart instead. For example, a moving average of 50 periods on a one-hour chart represents the average price of the previous 50 hours.
The death cross indicates that an asset’s price action has deteriorated over a certain period and market sentiment is generally negative. A trader may choose to sell more during such an event.