Recently, I was reviewing charts and came across something many traders underestimate again: the death cross. It’s one of those patterns that people ignore until it hits their wallet directly.

Basically, the death cross occurs when the 50-day moving average drops below the 200-day moving average. It sounds technical, but it’s quite simple: it indicates that short-term momentum is weakening compared to the long-term trend. When that happens, the market usually shifts from bullish to bearish.

What’s interesting is that this pattern has worked for decades. It’s not new. It accurately predicted the crashes of 2008 and the mid-70s. In the crypto market, it has also proven to be reliable. I remember in January 2022, Bitcoin showed a classic death cross. The price dropped from $66,000 to under $36,000, almost halving. It was brutal.

Now, the death cross trading has three phases. First, the long-term trend is bullish. Then, the short-term moving average crosses below the long-term one, which is already declining. In that second phase, both the short and long-term are falling, and the speed of the short-term decline accelerates. The third phase is when some traders wait for confirmation before acting, which means they miss part of the move.

Here’s the dilemma: do you wait for confirmation or jump in as soon as you see the cross? If you act quickly, you minimize losses or maximize returns if you go short. But you also risk false signals. If you wait, you avoid traps but lose opportunities.

Most traders use 50- and 200-day SMAs, although some prefer 30 and 100 for quicker confirmation. The key is that trading volume must be there. A cross without volume could just be profit-taking, nothing more.

There’s also the opposite side: the golden cross. When the 50-day moving average rises above the 200-day, it signals a trend reversal to bullish. I’ve seen Ethereum do this several times, and it usually marks the start of an upward rally.

The weakness of the death cross is that it’s a lagging indicator. By the time it appears, the decline may already be significant. That’s why some traders use a variation: they watch when the price drops below the 200-day moving average directly, without waiting for the cross. That often happens earlier.

For example, in Tesla, in July 2021, it showed its first death cross in two years. The S&P 500 also formed one in mid-2022, the first in two years. Historically, the S&P 500 has had 25 death crosses since 1970, most of which preceded significant declines.

The reality is that the death cross trading works best when combined with other indicators. High volume during the cross, MACD confirming momentum change, or technical resistance levels being broken. Don’t rely on it in isolation.

It’s not perfect, of course. Sometimes it produces false signals, especially in sideways markets. But as a tool in your technical arsenal, it’s hard to ignore. Especially if your goal is to identify when a market is shifting from bullish to bearish. That’s valuable information.