Investing in the stock market can be challenging, but using certain indicators and strategies can help simplify the process. One such powerful technical indicator is the Golden Crossover.
Golden Cross happens when a short-term moving average crosses above a long-term moving average, including the most common pattern of the 50-day SMA and the 200-day SMA. This pattern indicates that recent prices have been trending higher and may continue to do so.
In this blog, we’ll discuss the step-by-step process of identifying the golden crossover, allowing you to leverage this bullish signal within your trading strategy. Let’s begin!
6 Effective Steps to Identify Golden Crossover
Here are six effective steps to identify golden crossover stocks.
1. Select Stocks to Monitor
Primarily, you should begin with compiling a list of stocks to monitor for potential Golden Crossovers. Include the stocks from varied indices, sectors, or your specific watchlists. Plus, you can even use the screening tools to find the list of stocks with golden crossover based on technical criteria.
2. Analyze Moving Averages
Once you’re ready with the list of potential stocks, now you need to set up and analyze the moving average. Select the “Moving Average” option, setting one to a 50-day period and the other to a 200-day period.
The Golden Crossover occurs when the 50-day SMA crosses above the 200-day SMA, signaling a bullish trend. Regularly monitoring the charts will allow you to early identify that Golden Crossover will occur.
3. Confirm with Volume
After identifying the Golden Crossover, you must confirm it with volume analysis. Volume signifies the strength and validity of the crossover. In simple words, when the Golden Crossover is accompanied by significant trading volume, it indicates a higher chance of the trend happening.
Moreover, you should also look for volume spikes around the time of the crossover, allowing you to observe the substantial buying activity that confirms the upward movement. Using a potential charting tool will allow you to clearly visualize trading volume along with price movements.
In this step, you filter out the chances of false signals, as the Golden Crossover is backed by robust market activity.
4. Examine the Overall Market Trend
Now, you need to place the potential Golden Crossover within the context of overall market trends. Bullish signals are generally more reliable when the broader market also trends upward.
Analyze major indices like Nift 50 to gauge the overall market sentiments. When you compare the stocks with Golden Crossover with these major indices, it will allow you to determine that your selected stock is in sync with the broader market.
5. Evaluate Other Technical Indicators
In addition to Moving Averages, you should also confirm the Golden Crossover signal with other technical indicators available on your stock broking app. You may use indicators like the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, and more.
For instance, the Relative Strength Index (RSI) indicator’s value between 30 and 70 defines that the stock is neither overbought or oversold, supporting the bullish signal. In this way, you may use a comprehensive technical analysis to confirm the trend.
6. Conduct Fundamental Analysis
Finally, when you’ve selected the stocks that are likely to be appearing in the Golden Crossover, you should move towards conducting their fundamental analysis. Evaluate the company’s financial health by analyzing its key financial statements, including revenue, profits, debt levels, cash flow statements, and more.
Strong fundamentals and recent performances of the company support the sustainability of the bullish trend signaled by the Golden Crossover. Moreover, you should thoroughly review the company’s recent earnings reports, backing up your fundamental analysis.
Conclusion
In summary, follow the six steps mentioned above to identify the Golden Crossover. Once you find the potential signal, based on your goals and risk appetite, you can invest your capital. We hope this blog helps you understand how you can identify the golden crossover signal.
