Golden Crossover

Stocks with rising short-term price momentum, filtered when their 50-day EMA crosses over their 200-day EMA.

How to use the Golden Crossover scanner?

This scanner lists stocks that are entering an effective bull phase according to the principles of technical analysis. It filters out stocks that have shown greater momentum in recent periods relative to their longer-term average, i.e., stocks whose 50-day EMA has crossed above their 200-day EMA.

An exponential moving average (EMA), is a weighted average of the closing prices of the last few trading sessions, with a higher weight given to the most recent sessions. For example, a 30-day moving average shows the average price of the last 30 trading sessions, where the weight given to the most recent sessions would be more than the weight given to older sessions. An EMA is useful in identifying the trend.

A bullish EMA crossover occurs when the shorter-term moving average crosses above its longer-term moving average. It is indicative of the short-term price momentum in the stock being greater than the longer-term price momentum in the stock. A golden crossover occurs when a stock’s 50-day EMA crosses above its 200-day EMA, and presents a good opportunity to participate in the new uptrend.

We recommend using the following stock universe, indicators, and time frame for this strategy:

Let’s learn how to enter and exit a trade with this strategy.

Entry

1. The scanner identifies stocks where the 50-day EMA has crossed above the 200-day EMA.
2. Enter the stock once this crossover is confirmed, specifically at the candle following the 50-day EMA crossing above the 200-day EMA.
3. Ideally, you should enter the stock at the end of the day, on the first bullish candle after the crossover.
4. For a more risk-averse approach, consider entering the stock only when a bullish candle surpasses the high of the candle that triggered the entry.
5. Spotting a bullish candlestick pattern like a bullish marubozu or morning star provides strong confirmation for entering the trade.

The following chart marks the ideal entry point after a golden crossover occurs:

Stop Loss

The 50-day EMA acts as a stop loss for this trade. If the price drops below the 50-day EMA, it is a clear sign to exit, indicating that short-term traders are losing momentum.

Exit

You can exit the trade in either of the following instances:

The price reaches its latest swing high or previously tested resistance level.
The price closes below its 50-day EMA with a distinct bearish candle.
Spotting a bearish candlestick pattern like an inverted hammer, bearish marubozu, or evening star along with either of the above conditions provides strong confirmation for exiting the trade.

The following chart marks a good exit point after a death crossover:

Example Trade

This strategy triggered an entry in Tata Motors on 6th April 2023 when the golden crossover occurred, and an exit was marked by a bearish marubozu that breached the 50-day EMA on 13th May 2024. The trade lasted 403 days, yielding a return of 120%

Don’t forget

This strategy is best suited to be used in the daily time frame for most stocks. However, for some stocks, a weekly or monthly time frame may produce better results. Finding the optimal time frame involves a trial-and-error approach and necessitates thorough backtesting.
It is wise not to depend solely on this strategy for your entire portfolio.
Above-average trading volumes on the day of entry and exit serve as strong confirmation signals.

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Disclaimer

Upsurge.club is not a SEBI-registered research analyst. Do your own research before undertaking trading/investing in any security.

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Frequently Asked Questions

Can this strategy be used on smaller time frames?

Yes, this strategy can be used on smaller time frames like 4-hour and 2-hour charts. However, note that the higher the time frame, the more accurate the signal. Smaller time frames may give you more number of signals but less winning trades.