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What is a Golden Cross?

In the trading world, a golden cross occurs when a stock's short-term moving average rises above its long-term moving average.

How Does a Golden Cross Work?

For example, let's assume that Company XYZ’s 15-day moving average has been about $14 per share. But over the last two weeks, the 15-day moving average has been rising. Company XYZ's 200-day moving average is about $16.50 -- higher than the $14 short-term moving average -- but declining.

golden_cross-chart

Because Company XYZ’s 15-day moving average has been increasing, by the end of two weeks, the 15-day moving average is now higher than the 200-day moving average. The point at which the rising 15-day moving average crosses (that is, equals) the 200-day moving average is called the golden cross.

Why Does a Golden Cross Matter?

A golden cross is a telltale sign of bullish sentiment for a stock and sometimes for the economy as a whole. Thus, investors who watch technical trading charts tend to buy a stock when the short-term moving average rises above the long-term moving average, and they tend to sell when the short-term moving average falls below the long-term moving average.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.