Death Cross - YouTube

in my friend today we are looking at having a death cross stock market action

and yes it is officially here we do have the ominous death cross stock market trading strategy sounds like

something out of Star Wars but actually it is a very well known technical

analysis pattern and it's actually pretty darn simple which makes it even

that much more scary to some people because when things are simple a lot of

people look at them then they tend to have a self-fulfilling prophecy and

we'll talk about that in here in just a moment but first of all what is the

meaning of a death cross it's a couple of moving averages and in general you

could say that it is when a short-term moving average crosses below a long-term

moving average but normally it's referred to as two particularly moving

averages and those two moving averages are the 50 period simple moving average

right there and the 200 right there so the 50 simple moving average is the

green one the 200 is the magenta one on my charts and there we have it

boom the death cross this is on the S&P 500 by the way so yeah now that normally

is thought to signal a very very very bearish market where people are freaking

out say oh we're going to go down now actually let's look at that a little bit

let's look at it historically and let's see if that is actually true and then

I'll give you a some actual statistics so let's zoom all the way back as far as

my church will go so let's see so there we go

okay so this would be the first death cross on this chart and again it is

where the green moving average S&P or the 50 SMA crosses below the 200 SMA and

a nice little trade here so that is the actual point when you get the cross of

the moving averages and I kind of like it when you do get the moving or when

you get price coming back up into that not a bad little short signal there

because again those two particularly moving averages are watched by everybody

and his gerbil where everybody and her parakeet so again a part of it is a

self-fulfilling prophecy that people are looking at these levels and therefore

they are buying and selling and taking profits in placing stops and all that

kind of stuff around these areas so hey there's no magic to technical analysis a

big part of it is mass psychology so okay very good but does it lead to a big

big big big big bearish market well let's see pretty bad yep not too good no

bueno but so we go down from where we up here to around 1400 or just gonna reuse

round numbers Alison so yeah that's a big fall that's a big fall on the market

whoa it dropped down and even further goes down below a thousand there comes

back up and still we don't get the cross you know its price is going above but

that's not what the the pattern is there it goes back down oh my gosh went down

to 800 so you know what y'all banging yeah that would have kept this out of a

world of pain that we back there in his prints would say 1999 so yeah that would

have been a sweet thing to do alright let's look for the next death cross here

and there's where we get our next death cross all right boom right there

alright now this time the thing to note is that price keeps coming up and gets

back above the moving averages so one thing I want to say here very clearly

and that I always say is that we never use any one tool by itself so no one

praise powder and no one moving average crossover and no one nothing no one

indicator and one candlestick bar no one anything is going to give you a

probability of scenario that cludes the infamous death cross so we get across

here but gal d'arnot market comes right back up and it keeps going up so if you

would have traded just purely on the death cross

man you were screwed yeah you're screwed bad okay

so no bueno for that one all right but that's me we don't look at any one thing

we get almost to death cross here not quite okay they don't cross again my

moving averages are very slow they're lagging because they are averaging out

and here especially everything out over the period of 50 and 200 bars so really

really lagging right there again another death cross how well did that one if you

went short right there they just said I mean whenever there's a death cross man

I just automatically gonna put a market order in and tell my broker to you know

buy a bunch of naked puts really bad idea really horrible idea oh my gosh but

anyway if you just decided we need to be aware perish whenever that happens again

very very wrong in that situation so that signal did not work out well at all

and the thing goes screaming up screaming up screaming up screaming up

almost get a death cross there and now we get one back here in a 2008 notice

again though a similar pattern that we had in the last one that actually did

work so we get the cross of the moving averages price goes back up to them and

then comes back down below them again and to me that's one of the things that

you could look for if you want to trade these death crosses alright so look at

price action in relation to the moving average I'm not a big proponent of

moving average crossovers but you know again you can use them at certain

situations just use them with other things if you want to by themselves they

don't think they have a whole heck of a lot of meaning unless they're major

moving averages like these to which everybody looks at and then they become

a self-fulfilling prophecy and then what we just look at price action around them

and then we make our trades alright so again when I saved you if you were just

a bullish during that whole time yeah and that would just get a lot of money

this is not so good and we go into a spirit I can come back on up now another

death cross there mmm okay all right now again what happens

there now look we come back up into the 50 ma it goes back down comes back elbow

we're getting a lot of choppiness aren't we in a lot of choppiness around this

probably because a lot of people are looking at the death cross and their

guess if people are saying yeah I'm going short when it comes up to the 50

other people it gets up to the 200 that's when they are going short plus

we're you know at this high here so they're looking at that high and they're

going short off of that high so this is the psychology this is the reasoning

that's going on and the death cross again is a very well-known pattern but

overall the market decides hui nope going to go up by the way another thing

to look at here which is very telling is that when come down and make this what

could happen so we just take out just barely take out the low of this swing

low which a lot of people are gonna be looking none of these bars know the

highest of these bars are actually below that low and that's pretty typical of

how the markets work just enough to kill the breakout traders right people are

gonna say well I'll tell you what I'm not gonna treat the retrace I'm gonna

trade the break out of that low and then they get slaughtered and that's pretty

much how the market likes to do it yeah market is not your friend all right and

then we come up another death cross oh my goodness now let's see what happens

well if we don't get to kind of retrace that we had before so it just kind of

goes sideways chop he doesn't come all the way back up here in other words

right that's the pattern that we we liked where we said okay that one served

as well a couple of times in the past and so we don't get that we and I'll

tell you I don't really love these patterns that just go straight to the

downside these very very steep moves and then just treat a shallow retrace infect

and talk to our trading but we say you do not trade the first retrace and the

trend after a parabolic move and that's exactly why all right it goes back up I

think that's gonna be all she wrote oh no that's right we had this one here

you can see the dates down here and this one again was a horrible one but again

too another parabolic move down there a

strong vertical move down and again whatever patterns and tough trading is

do not trade that first retrace any after a parabolic move down would be

asleep just put an equal low that is not a double bottom by the way and then we

go back on up and then and now look this is very interesting so here good I got

both of them on the chart at the same time I forgot about this one so we go to

death cross there it would get another death cross there hmm so this is the

thing with moving averages in general they can be they can provide some choppy

signals like this they're very late they're very slow and that's why you

don't really treat moving average crossover so much unless we retrace

right into the cross then I might treat those as long as everything else the

lines but again we don't parabolic move down here's the same principle not going

to short that for the exact same reason we already talked about and then it's

back up off to the races so those who have taken my top dog training course

you know what I'm talking about there so anyway um and then BOOM

and now this is our next one now this time notice that we are we did retrace

rate to the cross so now what we're dealing with all right so if you shorted

that that would have been a decent pattern to trade to go sure it worked

out a couple times for us now you still got to manage your money right you gotta

manage your money so don't just assume that now this thing's gonna tank for the

next 25 years well I'm sure it's not but that's my opinion

however um you know if you took a quick short there and you took some profits

well we've got support right here don't we

and that's where we found support and then we got a boom nice candlestick

powder in there we got resistance right here and so

that's what we've got going on in the market right now quite frankly all right

we've got we put in that hi there hello there hi there well they were basically

in a sideways channel is what we are in and come off of that a little bit

if I'm treating this I'm definitely taking profits in fact in daily charts

like this I almost always take profits around the 50 and the 200 I may if I've

got a profit in the market because the markets really do respect its levels as

you can see over and over and over and over right now that's what we've got

that's all we got so nobody knows the future so if you have a bearish

sentiment that's okay but you know what I like to do is take some profits on the

way to my long-term destination and that way if the long-term destination doesn't

turn out yeah I could still make a little bit of money or get a scratch

trade or whatever by the way if you would have traded death crosses all the

way back on the S&P 500 back to 1928 to the present according to the stats that

I have seen you basically I mean it's you know wouldn't have made much

difference we have costs and so forth you might

even come out a little bit worse than buy-and-hold so if you're looking for a

long term stats on it the stats that I found are back to 1928 it really did not

outperform buy-and-hold when you incorporate expenses which you have to

do obviously but what it would have done is without volatility so you wouldn't

have suffered those big big big move down moves and that can be worth a lot

right that could be worth peace of mind so there you go I'm gonna do a follow-up

on this and in the follow-up video we're going to talk about the golden cross and

well I'll leave that for the next video and keep you waiting this little

cliffhanger for you so if you found this video helpful if you liked it if you

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