Ethereum, the largest altcoin by market cap, has just fired its second ever “death cross” — an ominous signal that could indicate a declining trend.
Despite the double appearance of the deadly sounding technical trigger, it might not spell certain doom for ETHUSD, as we’ll explain.
What To Expect From The Ethereum Double Death Cross
All eyes are now on Ethereum as another 1W death cross has appeared. The signal comes just weeks after a weekly golden cross, which immediately followed the first ever death cross in ETHUSD.
A death cross usually tells long-term trend traders that the trend will soon be pointed downward, and generates a sell signal in a moving average (MA) crossover trading system.
Since there is only one 1W death before this latest crossover of the 50-week MA and the 200-week MA, there isn’t much sample size to go by to determine the influence on future results. However, understanding how moving average-based systems work can potentially help shed some positive light on what might not be the death knell it sounds like it would be.
The ADX could suggest the death cross is whipsaw | ETHUSD on TradingView.com
A Technical Lesson On Trend-Following And Avoiding Doom
The most consistently profitable technical analysts and portfolio managers rely on trading systems to take positions and remove the decision making process. Trend-following systems, such as those that utilize moving averages, tend to perform the best.
Trend-following tools capture the largest portion of the trend, but take frequent, small losses. By betting on the trend, the lengthy stretches of gains far outweigh the occasional false signals and losses that occur due to whipsaw.
The fact that Ethereum death crossed, golden crossed, then death crossed again, the back and forth signals are a possibly nothing more than sideways chop. If so, ETHUSD still might not have established a new trend.
More advanced trend-following trading systems could also use the Average Directional Index as a trade filter. If the ADX is under 20, the trend isn’t strong enough to consider a trend-following tool. If the ADX is above 20, it suggests a trend is present and such methods should be effective.
Ethereum’s weekly ADX is at 17.9, making the death cross less attractive from a signal quality perspective. If Ether can golden cross yet again before the ADX rises above 20, further collapse can be narrowly avoided.
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Author: Tony "The Bull"