Death Cross Bearish Technical Indicator
As you all probably know, I think technical indicators are often self-fulfilling prophecies. If a lot of traders, especially high frequency traders, think that an indicator works, then they’ll make trades when they see the indicator. If enough of them do it, as is the case when it’s all computers, then the indicators work more often than they don’t. If all signs point to buy and lots of people buy, then the stock goes up and we can look back and say that the indicator worked.
Bearish indicators will lead them to sell. Bullish indicators will lead them to buy. When they look back at how their trades performed against the indicator, they’ll be validated as long enough other traders join them. These traders do a lot of trading, so just a few ticks upward means a profit to them and they just need to be right more often than they’re wrong.
Most technical indicators have boring names, like cup and handle, but I discovered one that actually has an interesting name – it’s called the DEATH CROSS. (it’s made more ominous because I put it in all caps and I bolded it!)
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Until a few years ago, the stock market was a mystery to me. I understood how it worked but I was always concerned about taxes, not getting ripped off, and the sums of money it seemed to take to “make” anything in the market. This was way before the huge market gyrations of the last few years, especially the pops and drops during the “Great Recession,” and I didn’t commit myself to learning until a few years into personal finance blogging.
Before the Facebook IPO, I wrote about how I wasn’t going to buy any shares. Then 11 AM rolls around, the NASDAQ opening cross on the stock put it at around $45 (that’s where the bids and asks meet, the NASDAQ gives you a general idea of where that is), and I thought why not play a little. I put in a limit order at $42 once the cross slipped to $43. I figured that there was a 99% chance my order wouldn’t get filled because I still thought the stock was going up (at least day 1). Then the IPO was delayed for about thirty minutes and I thought – “this is stupid, cancel that order.” Fortunately I did!


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