What does the MACD underwater golden cross mean? What changes does a dead cross above water indicate?

The MACD helps crypto traders spot buy and sell signals; an underwater golden cross suggests potential upward movement in a downtrend, while an above water dead cross indicates possible downward movement in an uptrend.

Jun 04, 2025 at 10:00 pm

The MACD (Moving Average Convergence Divergence) is a popular technical analysis tool used by traders in the cryptocurrency market to identify potential buy and sell signals. Two important phenomena associated with the MACD are the "underwater golden cross" and the "above water dead cross." Understanding these can help traders make informed decisions about their investments.

What is the MACD?

The MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a cryptocurrency's price. It consists of the MACD line, the signal line, and the histogram. The MACD line is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The signal line is a 9-period EMA of the MACD line, and the histogram represents the difference between the MACD line and the signal line.

Understanding the Underwater Golden Cross

The term "underwater" in the context of MACD refers to a situation where the MACD line is below the zero line. A golden cross occurs when the MACD line crosses above the signal line. Therefore, an underwater golden cross happens when the MACD line, which is already below the zero line, crosses above the signal line.

When this occurs, it suggests that the short-term momentum is beginning to turn positive, even though the overall trend might still be bearish. This can be a signal for traders to consider entering long positions, as it might indicate the start of a potential upward movement within a broader downtrend.

Trading Strategies for an Underwater Golden Cross

Traders often use the underwater golden cross as part of their strategy to identify potential entry points in a bearish market. Here are some steps they might take:

• Monitor the MACD: Keep a close eye on the MACD line and the signal line. When the MACD line is below the zero line and starts to move upwards, be prepared for a potential golden cross.
• Confirm the Cross: Wait for the MACD line to cross above the signal line. This confirms the underwater golden cross.
• Analyze Other Indicators: Use additional technical indicators, such as the Relative Strength Index (RSI) or Bollinger Bands, to confirm the potential upward movement.
• Set Entry Points: Once the golden cross is confirmed, set entry points for long positions. Some traders might wait for additional confirmation, such as the MACD line crossing above the zero line, before entering a trade.
• Set Stop-Loss and Take-Profit Levels: Establish stop-loss and take-profit levels to manage risk and potential profits.

What is the Above Water Dead Cross?

The term "above water" in the context of MACD refers to a situation where the MACD line is above the zero line. A dead cross occurs when the MACD line crosses below the signal line. Therefore, an above water dead cross happens when the MACD line, which is already above the zero line, crosses below the signal line.

When this occurs, it suggests that the short-term momentum is beginning to turn negative, even though the overall trend might still be bullish. This can be a signal for traders to consider exiting long positions or entering short positions, as it might indicate the start of a potential downward movement within a broader uptrend.

Trading Strategies for an Above Water Dead Cross

Traders often use the above water dead cross as part of their strategy to identify potential exit points in a bullish market. Here are some steps they might take:

• Monitor the MACD: Keep a close eye on the MACD line and the signal line. When the MACD line is above the zero line and starts to move downwards, be prepared for a potential dead cross.
• Confirm the Cross: Wait for the MACD line to cross below the signal line. This confirms the above water dead cross.
• Analyze Other Indicators: Use additional technical indicators, such as the RSI or Bollinger Bands, to confirm the potential downward movement.
• Set Exit Points: Once the dead cross is confirmed, set exit points for long positions. Some traders might wait for additional confirmation, such as the MACD line crossing below the zero line, before exiting a trade.
• Set Stop-Loss and Take-Profit Levels: Establish stop-loss and take-profit levels to manage risk and potential profits.

Practical Example of an Underwater Golden Cross

To illustrate the concept, let's consider a hypothetical scenario with Bitcoin (BTC). Suppose the MACD line for BTC has been below the zero line for some time, indicating a bearish trend. Suddenly, the MACD line starts to move upwards and crosses above the signal line, which is also below the zero line. This would be an underwater golden cross.

In this situation, traders might interpret this as a sign that the bearish momentum is weakening, and a potential upward movement within the broader downtrend is possible. They might decide to enter long positions on BTC, setting their entry points, stop-loss levels, and take-profit levels accordingly.

Practical Example of an Above Water Dead Cross

Now, let's consider another hypothetical scenario with Ethereum (ETH). Suppose the MACD line for ETH has been above the zero line for some time, indicating a bullish trend. Suddenly, the MACD line starts to move downwards and crosses below the signal line, which is also above the zero line. This would be an above water dead cross.

In this situation, traders might interpret this as a sign that the bullish momentum is weakening, and a potential downward movement within the broader uptrend is possible. They might decide to exit their long positions on ETH or enter short positions, setting their exit points, stop-loss levels, and take-profit levels accordingly.

Combining MACD with Other Technical Indicators

While the MACD is a powerful tool on its own, combining it with other technical indicators can provide more robust signals. Here are some ways traders might combine the MACD with other indicators:

• Relative Strength Index (RSI): The RSI can help confirm overbought or oversold conditions. If the MACD shows an underwater golden cross and the RSI is below 30, it might indicate a strong potential for an upward movement.
• Bollinger Bands: Bollinger Bands can help identify volatility and potential price breakouts. If the MACD shows an above water dead cross and the price is touching the upper Bollinger Band, it might indicate a potential downward movement.
• Volume: High trading volume can confirm the validity of a MACD signal. If the MACD shows an underwater golden cross accompanied by high volume, it might indicate stronger bullish momentum.

Frequently Asked Questions

Q: Can the MACD be used effectively in all market conditions?

A: The MACD is versatile and can be used in various market conditions, but it is most effective in trending markets. In range-bound markets, the MACD might generate more false signals, so it's important to combine it with other indicators and consider the overall market context.

Q: How often should traders check the MACD for signals?

A: The frequency of checking the MACD depends on the trader's strategy and time frame. Day traders might check it multiple times a day, while swing traders might check it daily or weekly. It's crucial to align the frequency with the trading style and not overtrade based on short-term fluctuations.

Q: Are there any limitations to using the MACD?

A: Yes, the MACD has some limitations. It can generate false signals in choppy or sideways markets, and it might lag behind rapid price movements. Additionally, relying solely on the MACD without considering other factors can lead to poor trading decisions.

Q: How can traders avoid false signals from the MACD?

A: To avoid false signals, traders should use the MACD in conjunction with other technical indicators and consider the overall market context. Additionally, waiting for confirmation from other indicators or waiting for the MACD line to cross the zero line can help filter out false signals.