Chapter 13
The Golden Cross and Death Cross Strategy

Imagine watching two lines slowly converge on a stock chart. One reflects recent prices — quick to respond, eager to move. The other drifts more slowly, carrying the weight of long-term momentum. And then, one day, the faster line crosses above the slower one. To some, this quiet intersection is a powerful signal. To others, it’s just noise.

Decades ago, a prominent technical analyst popularized this simple yet compelling idea. When a stock’s 50-day moving average climbs above its 200-day moving average, he declared, it’s a “Golden Cross” — a bullish omen suggesting the tide has turned in favor of buyers. Conversely, when the short-term average dips below the long-term one, it’s a “Death Cross” — a sign of weakness, perhaps even impending decline.

These crossovers have captured the imagination of traders for generations. They’ve made headlines, inspired strategies, and sparked countless debates. Are they truly predictive? Or merely descriptive? In this chapter, we put the theory to the test — applying it to over three decades of SPY data to uncover what really happens when Golden and Death Crosses appear.

13.1 The Strategy

The Golden Cross and Death Cross are among the most widely recognized patterns in technical analysis. Simple, yet striking, they appear on charts like moments of destiny — when short-term momentum overtakes long-term trend, or when it falters.

Specifically, the Golden Cross occurs when the 50-day Simple Moving Average (SMA) crosses above the 200-day SMA. It is typically seen as a bullish signal — the start of a new uptrend. Conversely, the Death Cross appears when the 50-day SMA crosses below the 200-day SMA, signaling potential weakness ahead.

To evaluate this strategy, we simulate buying SPY when the Golden Cross occurs, and exiting when the Death Cross appears. No leverage is used. Uninvested capital earns 4% annual interest, simulating returns from short-term Treasury investments. Dividends are included through the use of adjusted close prices, and all trades execute at the close on the day a signal appears.

13.2 Backtest Performance

Let’s begin with a high-level summary of the results:

• Initial capital: $10,000 on 1993-01-29
• Final value (as of 2025-07-12): $254,378.07
• Total gain: 2,443.78%
• Annualized return: 10.49%
• Max drawdown: 33.72%
• Calmar Ratio: 0.31

Compared to a simple buy-and-hold strategy on SPY — which returned 10.51% annually with a 55.19% drawdown — this crossover strategy delivered nearly the same long-term return, while cutting the worst drawdown by more than 20 percentage points.

You can view the full interactive results at: backalpha.com — Golden/Death Cross Strategy.

13.3 Execution History

This strategy is remarkably patient. Over a span of 32 years (1993 to 2025), it executed only 37 trades in total — 19 buys and 18 sells — completing 18 full trade cycles, with one final position still open as of July 2025.

On average, that’s about 1.16 trades per year — or one trade roughly every 10 months. Some positions lasted just a few days. Others stretched across multiple years — the longest holding period exceeded 4 years. During periods of uncertainty or flat markets, the strategy often stayed in cash, waiting for a confirmed crossover.

Each buy was triggered when the 50-day SMA crossed above the 200-day SMA, and each sell occurred when the 50-day SMA crossed below it again. All executions were based on adjusted close prices. When out of the market, capital was parked in interest-bearing cash — a conservative and realistic proxy for Treasury returns.

You can explore the full trade-by-trade timeline on the strategy page.

13.4 Drawdown Profile

The worst drawdown for this strategy occurred during the COVID crash in 2020, when the portfolio fell 33.72% over just 33 days — from $169,707.22 on 2020-02-19 to $112,486.57 on 2020-03-23.

This is a meaningful loss, but it was significantly smaller and faster than the 517-day drawdown of 55.19% endured by the buy-and-hold strategy during the Global Financial Crisis of 2007–2009.

The Calmar Ratio — which divides annualized return by maximum drawdown — was 0.31 for this crossover strategy, compared to just 0.19 for buy and hold. That’s a substantial improvement in return-to-risk efficiency.

13.5 Analysis and Tradeoffs

The strategy’s greatest strength is its ability to manage downside risk. By moving to cash during prolonged weakness, it sidesteps the worst market crashes. This alone can be a major psychological advantage for investors — reducing fear, stress, and the temptation to panic-sell.

However, it comes with limitations. Because moving averages are lagging indicators, the strategy often reacts slowly. It may exit after much of a decline has already occurred, or re-enter only after most of a recovery is behind us. In sideways markets, this can lead to “whipsaw” — frequent back-and-forth signals that lead to unnecessary trades and missed gains.

More importantly, despite this active monitoring, the strategy does not outperform buy and hold on a return basis. Its 10.49% annualized return is virtually identical to buy and hold’s 10.51%. So from a pure profit standpoint, the crossover system offers no real edge.

This raises an important question: is the added complexity worth it?

13.6 Why Use This Strategy?

At first glance, spending time tracking SMA crossovers, executing trades, and holding idle cash — all without boosting return — may seem like wasted effort. But that view misses the point.

The primary benefit of this strategy isn’t greater return — it’s lower risk. A drawdown of 33.72% is far more tolerable than 55.19%. For many investors, this smoother experience can be the difference between staying invested and giving up during crises. A system that avoids catastrophic losses — even if it sacrifices a little upside — can be more sustainable over the long run.

And there’s another angle: leverage.

If a strategy delivers lower drawdowns, it creates headroom for responsible risk-taking. For example, if you apply 2x leverage to this crossover system, and the resulting drawdown remains below 55% — the drawdown of unleveraged buy and hold — then you’ve effectively improved return without increasing historical risk. In that case, it’s a no-brainer: the crossover method becomes a risk-adjusted gateway to superior outcomes.

We’ll explore this idea more deeply in the next chapters.

13.7 Final Thoughts

This strategy shows that timing the market doesn’t have to be complicated. A simple crossover of two moving averages can help avoid the worst crashes — while still capturing most of the market’s long-term gains.

Yet it’s crucial to stay grounded. The Golden Cross isn’t a crystal ball. It won’t catch every bottom or protect you from every loss. But it does offer a disciplined, rules-based way to manage risk — and that alone can make it valuable.

For those who prioritize smoother growth, better sleep, or a foundation for responsible leverage, the crossover strategy deserves consideration.

In the next chapter, we’ll refine this concept further. What happens if we require not just a crossover, but a minimum threshold between the moving averages — a sign of stronger conviction? We’ll explore that enhanced strategy next.