Many Forex traders know about the golden cross, but do not prefer this as they start with Forex trading. It is one of those formations, which didn’t get enough light on it, if used correctly can be one of the best indicators in the FX market. It is a bullish technical formation, which supports upward momentum in both the market situations i.e. bullish and bearish.
This formation comes from the intersection of average lines. To use this technique trader needs to identify the short-term average above the long-term component. In case, the currency price moves higher, then the short-term components will naturally move above the average price over the long term. It supports even higher prices in the near term as the trend builds. Let’s have a look at the golden cross formation.
Say we have got a 15 min chart for the EUR/USD pair. After the decline from 1.4870, the currency tested 1.4760. Now observe how the golden crosses in the hypothetical oscillator to the left of the chart confirm long buy entries in the EUR/USD (purple line passes the yellow line). The second golden cross does the trick as the exchange rate rises to the top at the high of 1.4889 i.e. 100 pips above the support level.
Applying indicators and filters
Now, the formation of the golden cross seems easy, but it is always good to have buffers or filters in addition to the main signal. Due to this, there would be more confirmation to take into account before performing any order i.e. buy or sell.
Now think we’ve another golden cross opportunity as long as we’re using the theory of probability. In this image, moving averages are used to authenticate a shift in EUR/CAD trend. On the left side of the chart, we’ll find that heavy support has been established at 1.3664. This beef up to the right of the chart where EUR/CAD is aimed to test this level again after failing to cleft the resistance 1.3957.
Now See how the golden cross beats the price action and turns towards the downward trend. So placing the entry at 1.3750 with a stop below 15 pips at 1.3600, the stop is placed to make sure that position should not be stopped at the support level. Now wait for some time which finally results in favor and we get to profit from the golden cross. EUR/CAD price jumps of the support level and appreciates as expected. While in the end, you’ll find that the trade has the potential to fulfill the min risk/reward ratio by rising straight past and taking profit at 1.4050.