Golden cross and death cross.

The definitions

On a daily chart, the golden cross happens when the 50-day moving average crosses above the 200-day moving average. The death cross is the mirror image: the 50-day crosses below the 200-day. Both are most often calculated as simple moving averages of the daily close, although exponential versions are also charted. They are usually applied to broad indexes and large, liquid stocks, because that is where the 200-day average is most widely watched.

Why people watch it

The 200-day average is a common shorthand for the long-term trend, and the 50-day for the medium term. When the medium-term line moves from below to above the long-term line, it says the recent months have been stronger than the past year's average. Because so many people look at these two lines, the crossing is widely reported and easy to describe, which is part of why it has such memorable names.

What it is not

• Not a prediction. It is a lagging description. Two long averages need a lot of price history to move, so the cross often arrives well after the turn.
• Not a guarantee. A golden cross can be followed by a decline, and a death cross by a recovery. Anyone quoting a clean success rate is simplifying or selling something.
• Not a complete system. It says nothing about where to place a stop, how large to trade, or when to get out.
• Not specific to stocks or futures. The arithmetic is the same on any chart; whether it is useful differs by market and has to be tested.

Limitations worth knowing

It is late by construction

A 200-day average reflects roughly the last 200 sessions. For it to be overtaken by the 50-day, price must have been moving the other way for a good while. That is the reason the signal is steady, and also the reason it is slow.

It can whip back and forth

When price drifts sideways, the 50-day and 200-day averages sit close together and can cross, uncross and cross again over a short stretch. Each crossing is a separate signal, and each costs a trader who acts on it.

Few signals, little evidence per market

On a daily chart a given market produces only a handful of these crossings in years. That makes it hard to draw confident conclusions from any single market's history, which is a reason to be sceptical of tidy statistics.

The averages are choices

SMA versus EMA, 50/200 versus 40/180, or closing prices versus other price inputs all shift where and when the crosses appear. See the SMA vs EMA guide for how the calculations differ.

Using it sensibly

Many traders use the position of the 50 and 200 as background: is the market in a long-term uptrend, a downtrend or neither? Then they take their entries from shorter-term setups. Treating the cross as context, not a trigger, avoids the worst of its lag. If you want to turn it into a rule, define exactly what you will do and test it on data you did not use to design it; the settings guide and strategies.ninja on backtesting cover how.

Shorter-term traders often use faster pairs of the same idea; see the EMA crossover guide. To plot the 50 and 200 in NinjaTrader, see the NinjaTrader page, or browse Affordable Indicators' NinjaTrader software.