A golden cross happens when a shorter moving average, usually the 50-day, crosses above a longer one, usually the 200-day. A death cross is the opposite: the 50-day crosses below the 200-day. Traders read them as signs of a longer-term trend change.
Because both averages are slow, these crossovers happen only after a sizeable move has already taken place. So a golden cross confirms that a stock has been recovering for a while, rather than predicting a fresh rally. The death cross similarly confirms a weakening trend.
Consider a hypothetical stock that falls from ₹800 to ₹600 over six months, then recovers to ₹720. Somewhere along that recovery, the 50-day average crosses above the 200-day, giving a golden cross. By then, the stock has already risen ₹120 from its low.
That lag is the main limitation. In sideways markets, the two averages can cross back and forth several times, producing false signals. Many traders use the cross as a filter, for example only taking long trades when the 50-day is above the 200-day, rather than as a direct buy or sell trigger.
The mistake to avoid is treating a death cross as a reason to panic-sell long-term holdings. Look at volume, support levels and the broader market as well. We cover moving average systems, along with tools like the MACD indicator, in our Technical Analysis course.