A GOLDEN CROSS (50 sma crossing above 200 sma) indicates a long-term bull market going forward, while a DEATH CROSS (50 sma crossing below 200 sma) signals a long-term bear market. Either cross may occur as a signal of a trend change, but they more frequently occur as a strong indication of a reversal that has already taken place. I use this moving averages to decide whether I should have some position or not, as well as determining the percentage I'm willing to risk in every trade. Mix in volume and you'll have a simple but very reliable signal to use. As always, for me price and volume is king, the rest are just noise. A simple tool to clearly see the market's direction (up, down, or sideways).
Notes:
I'm only in the market right after the GOLDEN CROSS.
I trade normally when prices above 50 sma.
I lessen risk tolerance when prices go below 50 SMA.
I go all cash and wait in the sidelines when DEATH CROSS happens.
This strategy has saved my portfolio from big losses during big market dips. Additionally, on long up trends I can confidently let my profits run as long as my moving averages are pointing up. Take note though that I only use this to assess the general market's trend.
