Posted in Finance, Accounting and Economics Terms, Total Reads: 606
Definition: Death Cross
A death cross is a financial indicator that indicates the crossover of a stock’s short term moving average below its long-term moving average. Moving average is a technical indicator used to analyse the trends in stock price variation and is determined by the closing price of the stock, over a specified period.
Moving averages provide the support and resistance level for a stock, which are the floors and ceilings that prevent the stock price from falling further down or rising beyond the limits that are set by them. Price crossovers result when the stock price moves from one side of the moving average to close at its other side. This acts as a trading signal that is used by investors to identify shifts in the price movement and determine the relevant trading strategy. The death cross is a price crossover that signifies that the current downtrend in the stock price is likely to continue for a long period, resulting in a highly bearish strategy for investors of that stock. When a short-term moving average crosses below the long-term average, the resulting trading signal signifies a sell strategy to investors.
In general, a death cross is defined as the crossover that results when a 50-day moving average falls below a 200-day average. The above images illustrate point of crossover of the short-term moving average below the long-term moving average, resulting in the death cross