Long-Term Profitability: How Moving Average Crossovers Create Opportunities in Bull Markets

Trading offers multiple approaches and strategies, each tailored to different timeframes and profitability objectives. While short-term traders seek quick movements through scalping with periods less than an hour, those adopting longer horizons require tools that identify sustained trends. Among the most reliable techniques for this purpose is Golden Cross trading, a technical analysis pattern that combines two moving averages to detect significant changes in market direction.

▶ The Golden Cross: Fundamentals of a Proven Strategy

The Golden Cross occurs when a short-term moving average crosses above a long-term moving average, signaling a shift from a bearish to a bullish market with momentum. This convergence of lines is not merely a visual crossover but a change in momentum where recent gains surpass the broader historical average.

The effectiveness of Golden Cross trading is maximized in assets with clear and lasting trends, especially stocks and stock indices. The indicator generates few false signals when applied correctly, ensuring that each opportunity has higher probabilities of success. However, the key lies in selecting the appropriate periods and complementing the analysis with additional tools.

▶ Simple Moving Average: The Engine of Technical Analysis

Moving averages are price averages calculated continuously over specific periods. The Simple Moving Average (SMA or SMA in English) takes closing values and averages them directly without special weighting.

For example, a 5-period SMA sums the last 5 closes and divides the result by 5. If the closing prices were 3,864.7, 3,836.5, 3,943.1, 3,952.1, and 3,988.8, the resulting average is 3,917.04. This calculation repeats each candle, creating a line that smooths market noise and reveals the underlying trend.

The reason moving averages work is that they compress historical information into a single metric. A 200-period SMA on a daily chart effectively analyzes nearly a year of behavior, making it especially reliable for identifying genuine trend changes versus random movements.

▶ Why 50 and 200: The Periods That Provide Advantages

Golden Cross trading specifically suggests using 50 and 200-period moving averages. This selection is not arbitrary: the 200 SMA acts as a very long-term trend indicator, while the 50 captures more recent movements. When the 50 crosses above the 200, it indicates that the last 2 months’ average has surpassed the behavior of the past 200 days, a strong signal of a cycle change.

Using shorter periods, such as 15 and 50, would generate too many crossover signals, most of which are false. Short-term volatility would create excessive noise. Conversely, longer periods significantly reduce false alarms, allowing traders to focus on genuine opportunities with higher profitability potential.

It is essential to analyze in daily timeframes when applying Golden Cross trading. Doing so on 1-hour charts would mean the 200 SMA calculates the average over 200 hours, completely distorting the purpose of the long-term indicator.

▶ Practical Case: S&P 500 and the $1,278.9 Profit in 18 Months

The S&P 500 index generated its most recent Golden Cross in July 2020, with the asset trading at $3,151.1. A trader who had opened a buy position at that time would have held it as the index steadily rose, with both moving averages acting as dynamic supports.

In January 2022, the S&P 500 was trading at $4,430 when the candles finally broke the support of the 200 SMA, signaling the closure of the position. With a contract lot, the profit would have been $1,278.9 in approximately 18 months, demonstrating how Golden Cross trading rewards patience and discipline.

Later, in March 2022, the inverse crossover occurred (known as Death Cross), when the 50 SMA fell below the 200 SMA, confirming a shift to a bearish market at $4,258.6.

▶ The Importance of Multiple Confluences

Although Golden Cross trading is powerful, it should not be the sole entry criterion. On the same S&P 500 chart, Fibonacci analysis could be added between recent lows and highs. The price bounced at the 0.618 Fibonacci level, providing an additional confluence. Additionally, a previous resistance turned support at $3,229 was identified.

With these three confluences (Golden Cross + Fibonacci bounce + previous support/resistance), entering between $3,222 and $3,229 at the end of September had much higher success probabilities. Although the price dropped to $3,208 initially, causing small losses, those who maintained the position saw the bullish trend reestablish and generate significant gains.

This example illustrates why professional traders never rely on a single indicator, no matter how reliable the Golden Cross trading is.

▶ Death Cross: The Opposite Side of Technical Analysis

The Death Cross occurs when the 50 SMA crosses below the 200 SMA, reversing the bullish signal into a bearish one. Contrary to what the name suggests, this pattern is not inherently “bad”: it simply reverses the trading opportunity.

The Death Cross is especially effective in Forex and cryptocurrencies, where markets do not have the long-term bullish bias of stocks. In these markets, the bearish crossover creates genuine short-selling opportunities during sustained downtrends. However, in stock indices like the S&P 500, a Death Cross typically means closing buy positions, as these markets tend to rise over the long term.

▶ Limitations: No Indicator Is Infallible

There is no perfect trading strategy, and Golden Cross trading is no exception. To improve its reliability, traders should:

• Combine the indicator with other technical tools (Fibonacci, trend lines, support/resistance)
• Trade only in assets that demonstrate lasting trends and few false crossover signals
• Complement technical analysis with fundamental analysis of the asset
• Consider overnight financing costs, especially important for positions held for weeks or months

The profitability of Golden Cross trading does not come from the indicator’s accuracy but from the trader’s discipline to wait for genuine signals, confirm them with confluences, and hold the position as the trend develops.

▶ Conclusion: A Proven Tool for Long-Term Investors

Golden Cross trading represents one of the most reliable strategies for identifying long-term trend changes. Its operational simplicity, combined with proven effectiveness in assets like the S&P 500, makes it a favorite among disciplined investors.

The key to success lies in not trading blindly based on the Golden Cross but in seeking confluences that confirm the signal and patiently waiting for the best entry moments. Those who combine Golden Cross trading with fundamental analysis and proper risk management have generated sustained profitability during years of bullish markets.