Hello everyone, I am Amu. I believe that anyone involved in trading is familiar with moving averages. When we open domestic charting software, there are always default moving average indicators on the chart. Moving averages can be said to be one of the most commonly used technical indicators today.
Among all technical indicators, moving averages are also the most fundamental. Indicators like MACD and Bollinger Bands, which you are also familiar with, are built upon the foundation of moving averages by adding calculation conditions and rules. Moving averages play a crucial role in studying technical indicators. Therefore, in the next video, I will start from the most basic principles of drawing moving averages and then discuss their functions, applications, and how to use moving averages to construct strategies, gradually delving deeper into my understanding of moving averages.
The moving average we commonly refer to is also known as the Simple Moving Average, abbreviated as MA. The drawing rules for moving averages are not complex. We sum the closing prices of recent candlesticks and then average them to obtain the moving average value corresponding to the current price. For example, suppose the recent trend is as follows. We plot a moving average with a parameter of ten, starting from the current candlestick and counting backward ten candlesticks to extract each closing price. We then sum the closing prices of the ten candlesticks and divide by the period to arrive at the average closing price of the recent ten candlesticks.
Under the current price trend, the value of the ten-period moving average. When the price fluctuates to form a new candlestick, we start with the new candlestick, count backward ten candlesticks, and repeat the process of summing and averaging to obtain the current moving average value. This process can be repeated. We can calculate the moving average value corresponding to each candlestick, and then smoothly connect the calculated values to obtain the moving average for this segment with a period of ten. If the moving average is calculated with a parameter of 30, the line connecting the summed and averaged closing prices of the recent 30 candlesticks will result.
This is the rule for drawing moving averages. Understanding the principles of simple moving averages allows us to extract closing prices from a segment of price movements, even without tools. We can calculate using the moving average formula to plot the corresponding period's moving averages. The principle of drawing a moving average is that simple. However, there are various applications for using moving averages. Many have expanded upon the basic moving averages, generally categorizing them as short-term, medium-term, and long-term moving averages based on their periods. In terms of usage, there are single moving averages, double moving averages, and combinations of moving averages. By using these combinations, we can track trends, assist in upward and downward movements, and identify support and resistance, among other things.
Next, let’s think about several functions of moving averages. Before we think about that, we need to clarify a question: Is it price movement that affects changes in moving averages, or do moving averages influence price movement? In previous sections, we understood the rules of moving averages. By calculating the moving average values and drawing the moving averages, let’s briefly review: we extract the closing prices of the corresponding number of candlesticks from the current candlestick according to the moving average parameters and then calculate the corresponding moving average values according to the formula. In this calculation process, it is the recent closing prices of candlesticks that determine the current moving average value. So we need to understand that moving averages are drawn based on past price movements, with price changes driving the changes in moving averages.
In other words, the movement of the moving average is always lagging behind price movements. When prices rise continuously, the closing prices of the candlesticks keep increasing. By summing the closing prices and averaging them, we obtain the moving average value. As prices rise, the moving average value corresponding to each candlestick also increases. The connected moving averages form an upward slope. A period of continuous price increases will cause the short-term moving average slope to rise. If prices rise continuously for a longer period or increase significantly in a short time, the long-term moving average slope will also rise. Both short-term and long-term moving averages show an upward slope, and the short-term moving average is closer to the price, forming a bullish arrangement of moving averages. What information can we derive from the slope and bullish arrangement of moving averages? We can conclude that prices have been continuously increasing over a period or have experienced a significant increase in a short time. So will prices continue to rise next?
It is possible, but not certain. We first need to understand a causal relationship. A relatively long period of continuous upward movement or a significant increase in a short time will cause the moving averages to show a bullish arrangement. Although the past price movement has been upward, the future price may continue to rise or may undergo consolidation or reverse downward. Understanding this process, let's take a look at several functions of moving averages.
Firstly, regarding trend tracking, the upward movement of objective prices forms an upward slope in the moving average. Longer continuous upward movements or significant increases in short time frames will create a bullish arrangement of moving averages. The upward trend in the past determines the current slope of the moving average and its bullish arrangement. Since moving averages are drawn based on recent candlesticks, the recent price fluctuations will affect the moving averages. The moving average will rise with the recent price movements and fall with price declines. However, when discussing trend tracking, it is essentially a result of price changes driving moving average changes. The state of the moving average also describes the state of the trend that has already happened, so moving averages are merely an objective description of past trends.
Instead of predicting future price fluctuations, sometimes a specific parameter's moving average can perfectly align with the price. Knowing the rules for drawing moving averages allows us to understand that this kind of market condition describes more of an upward rhythm, where the price falls below the moving average. This does not necessarily indicate a trend reversal; it may just signify a slowdown in the upward rhythm. We can use the slope of the moving averages arranged in a bullish pattern to assess the current trend. However, moving averages are merely a tool that lags behind price movements. When you can directly obtain information from price movements,
If you can determine the market trend by analyzing price movements, then you do not need the moving average tool. For example, the Dow Theory defines trends as higher highs and continuously rising lower lows. By observing the highs and lows of prices, one can also determine the current trend.
Secondly, regarding whether moving averages assist in upward or downward movement, we need to think about this issue. If moving averages really do have an impact on price, it means that the majority of the capital in the market is trading based on moving averages, placing orders according to their state. Now the question arises: Do funds in different markets and assets all trade based on a specific moving average? Which moving average or which type of moving average is the majority of the funds in the market trading based on? The relationship between price movements and moving averages is like the relationship between a person and their shadow. In a fixed light and position, the shadow takes on a corresponding shape due to the person's movements. When the person begins to move, the shadow changes according to fixed rules. When we move toward our destination, who would speed up or change their direction because of their shadow? People do not walk according to their shadow; rather, the shadow follows the person. Similarly, moving averages follow price changes, not because the moving average causes the price to accelerate up or down.
Thirdly, regarding the support and resistance of moving averages. In a previous video on support and resistance, I discussed the principles and applications of support and resistance, which have two core elements: anchoring effect and order-driven dynamics. If we could summarize the principles of support and resistance in the trading market in one sentence, it would be that market funds anchor to a position and operate orders based on that position, thus creating support and resistance. For example, when many funds in the market focus on a larger timeframe, there may be a key high point in the past. Bullish orders may close based on this position, while bearish orders may enter based on this position, causing the price to reverse and decline when it reaches the previous high point. This illustrates that market funds anchor to a position and operate orders based on that position, leading to price changes. Returning to the moving average, does a moving average have support and resistance? We should observe whether the majority of funds in the market are operating orders based on this moving average, resulting in price reversals upon reaching the moving average and triggering a trend. Therefore, if a moving average indeed has support and resistance, when the price reaches the moving average, there will definitely be capital order actions, and these actions will cause price changes. If the price reaches the moving average without any price changes, it only indicates that the market funds are not trading based on this moving average, or that there is not enough capital trading based on this moving average. Of course, there may also be periods when a specific asset perfectly aligns with a moving average, where each time it reaches this moving average, it finds support and rises. This indicates that the funds participating in the market during this period recognize the support and resistance of this moving average. However, when trading with moving average support and resistance, it is essential to understand the principles of support and resistance and to go through an important step.
This is to verify whether the market's funds have consistently recognized the support and resistance of a particular moving average during this period. Will the price reverse when it reaches the moving average? If there is no validation of price movement supporting this, then support and resistance cannot be discussed. Understanding the role of moving averages is crucial. When using moving averages as an analytical tool, one must fully comprehend the principles of the indicators, think carefully, and understand both the advantages and disadvantages of a tool to apply it correctly. When just starting in trading without more efficient ways to assess the current price trend, the golden cross, death cross, or bullish arrangement of moving averages can be observed intuitively according to the rules, allowing for a straightforward observation of the current market state. Technical indicators like moving averages have specific and clear rules and fixed formulas. Therefore, for the same asset and period, using the same parameters for moving averages, everyone can arrive at the same moving average, observing the same price movements and the relationship between the price and the moving average. If you have objective rules for using moving averages to assess market conditions, each person can observe the state of the moving averages and reach consistent, objective judgments about the market. Using moving averages is not like trend lines, where everyone has their own rules for drawing lines, resulting in countless different lines. Relatively speaking, moving averages are more objective; their advantage is intuitiveness, while their disadvantage is that they lag. Moving averages are a simple and easy-to-understand aid. Our trading tools allow us to observe the market intuitively through specific rules and to make objective judgments about the market.
Because moving averages are simple and intuitive, they are very user-friendly for those just starting in trading. Before mastering more effective tools for analyzing market conditions, moving averages can be very helpful at this stage. Similarly, because the drawing principle of moving averages means their values change with price fluctuations, this also determines that the movement of moving averages will lag behind price movements. Therefore, do not overapply or overly mythologize moving averages. They lag behind prices and follow price changes to describe past price movements. The price movements over a period determine the movement of moving averages. When prices fluctuate, they will move chaotically up and down, and moving averages will reflect continuous price increases.
Moving averages will slope upward. Longer continuous upward movements or significant increases in short time frames will result in moving averages showing a bullish arrangement. However, the corresponding state of moving averages merely describes the trend that has already occurred and does not indicate how prices will change next. Regarding the positioning and understanding of moving averages, let's use the previous example: a person moving toward a goal under the sun. The relative position of the sun and the person determines the shape of the shadow. As the person moves, the shadow also changes. We can see the person's position through the shadow, and whether they are walking or running. However, we must not get it backward; the person does not adjust their actions and direction based on the shadow. Instead, the shadow follows the person. To know where the person is going next, you should observe and study the person moving forward, not the shadow.
If you want to know more about technical issues related to candlestick patterns, feel free to leave comments, and I will answer based on my understanding! Liking and following me is the greatest support!#MichaelSaylor暗示增持BTC 