Trading golden cross,day trading stock picks free,options basics how options work,binary stock trading software - Good Point

29.03.2014 admin
Worth noting that "the ratio of short-term to long-term moving averages" is precisely what the MACD indicator examines, though traditionally based on 12 and 26 day EMAs, rather than 50 and 200 day ones. Despite its popular following, there has been surprisingly little research on whether the golden cross actually works and what it really tells the investor. Investors like this calculation because it strips out the intra-day volatility of a share price ("noise") to give a fixed trend that can be tracked over a given time frame. On a stock chart, the golden cross occurs when the 50-day MA rises sharply and crosses over the 200-day MA.
According to Joseph Granville, a famous technician from the 1960’s (who set out 8 famous rules for trading the 200-day MA), a golden cross can only occur when both the 50-day and 200-day moving averages are rising.

Others takes a less stringent view on this. Usually, a golden cross is associated with sharp upward price movement and can be used as a buy signal in the belief that a significant uptrend will follow. This found that, while using either a long-only or long-short strategy based on golden crosses could work in certain market conditions, neither produced strong results versus traditional strategies. In only 34.9% of all observations between 1950 and 2012 did those two strategies outperform a traditional buy-and-hold portfolio. Interestingly, though, related research in this field suggests that some of the same behavioural drivers that support the idea of value investing are relevant when thinking about golden crosses - or rather what happens after they occur. In 2005, US finance professor Seung-Chan Park produced a paper looking at whether it was possible to predict the medium-term outperformance of a stock based on the ratio between its 50-day and 200-day MA.

Over time, the full impact of that news diffuses into the market and the stock price falls further. What this means for momentum investors So while the evidence that a golden cross is truly bullish is rather mixed, Park’s work suggests that the ratio of short-term to long-term moving averages does have a meaningful amount of predictive power for future returns.

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