Experts have seen a death cross shaping up on the bitcoin chart. The formation of such a pattern could point to an imminent price collapse. But how does it work in practice? And does this signal really precede a crash?
The death cross is a TA pattern in which the 50-week moving average crosses below its long-term moving average, usually the 200-day. The pattern is often considered as a signal for a possible decline in the value of the asset.
The formation of a death cross means that the long-term dynamics of the bitcoin price has become even worse than a year earlier. This could point to a decrease in demand.
However, the average lines and technical signals on the chart are lagging indicators and can send out potentially false signals. Many traders tend to focus on these signals to attract more traffic to their resources, although in practice they are not always reliable.
Therefore, it should come as no surprise if the price action rebounds after the final formation of the death cross. In our view, it makes more sense to use this trading signal as an additional tool combined with other indicators. Using the death cross in its pure form is too risky.