The golden cross is the best-known trend signal there is. It compares two averages of the closing price, one over the last 50 days and one over the last 200. You own the stock while the 50-day average is above the 200-day one and sell when it crosses back below. There is no stop loss, and it never sells short.
People like it because it keeps you in during a long rise and gets you out of a long fall. The catch is that both averages move slowly, so it buys after a rise is well underway and sells after a fall has already hurt.
Here it barely traded, so each result rests on a couple of entries and exits. It made money on four of the five stocks and lost on Microsoft, where the averages crossed back and forth and it got in and out several times at the wrong moments.
In the table, the biggest drop is the most the account fell from a high point before it recovered.
| Stock | With the strategy | Just holding | Trades | Biggest drop | Backtest |
|---|---|---|---|---|---|
| SPY | $12,791 (+27.9%) | $14,692 (+46.9%) | 1, plus 1 still open | -19.9% | See the backtest |
| QQQ | $14,272 (+42.7%) | $16,717 (+67.2%) | 1, plus 1 still open | -24.0% | See the backtest |
| IWM | $12,412 (+24.1%) | $13,521 (+35.2%) | 1, plus 1 still open | -17.7% | See the backtest |
| AAPL | $12,018 (+20.2%) | $19,649 (+96.5%) | 1, plus 1 still open | -30.1% | See the backtest |
| MSFT | $8,260 (-17.4%) | $12,168 (+21.7%) | 4, plus 1 still open | -28.7% | See the backtest |
How we tested
We ran the textbook rules on SPY, QQQ, IWM, Apple and Microsoft from Mar 26, 2024 to the end of last month, in the same Backtest tab you can use. The 200-day average needs 200 days of prices before it exists, so this is the first day the golden cross could trade, and every strategy on this site starts on the same day.
Every test starts with $10,000 and puts the whole balance into each trade, with no borrowed money. Costs are the tester's defaults for stocks: half a cent a share in commission and a cent of slippage on every fill. Slippage is the gap between the price you wanted and the price you got.
"Just holding" buys the same stock on the first day of the test and keeps it to the end.
Questions
Does the golden cross beat buying and holding?
No. It didn't beat just holding on any of the five stocks after costs, even though it made money on four of them.
Why does it trade so rarely?
The two averages only cross when a long trend turns, and these stocks spent most of these dates going up. With this few trades, one good or bad entry decides the whole result.
Can I test it on a different stock?
Yes, with a paid plan. Press "Try it yourself" to open the Backtest tab with the golden cross already loaded, then change the stock. A backtest of the golden cross needs more history than a free account can reach.