1. What is a moving average?
Moving Average: Also known as a moving average line, it is the average of the closing prices of stocks (or cryptocurrency) over the most recent N days, connected to form a moving average line.

The essence of the moving average is to reflect the average holding cost and price trend in the market over a period of time.

Commonly used moving averages include:

MA5 Daily Moving Average: Average cost over the past week

MA10 Daily Moving Average: Average cost over the past two weeks

MA20 Daily Moving Average: Average cost over the past month

MA60 Daily Moving Average: Average cost over the past quarter

MA120 Daily Moving Average: Average cost over the past six months

MA250 Daily Moving Average: Average cost over the past year

Among them: MA5 Daily Moving Average and MA10 Daily Moving Average are short-term moving averages; MA20 Daily Moving Average and MA60 Daily Moving Average are medium-term moving averages; MA120 Daily Moving Average and MA250 Daily Moving Average are long-term moving averages.

In daily usage, we often mention the following terms:

Weekly Line - MA5 Daily Moving Average

Monthly Line - MA20 Daily Moving Average

Half-Year Line - MA120 Daily Moving Average

Yearly Line - MA250 Daily Moving Average

2. The three core uses of moving averages
1. Determine the direction and strength of the price (or cryptocurrency) trend

① Moving Average rising: Indicates that the average market cost is increasing, bulls are dominant, representing an upward trend. Suitable for holding stocks and watching or looking for opportunities to buy on dips.

② Moving Average falling: Indicates that the average market cost is decreasing, bears are dominant, representing a downward trend. Caution is needed to enter the market, and those already holding stocks should tighten stop-loss and take-profit levels, being wary of declines.

③ Moving Average flat: Represents a flat trend, with stock prices oscillating within a range, with balanced buying and selling forces. Suitable for watching or high selling and low buying.

As for trend strength, multiple moving averages should be combined for judgment:

Strong upward trend: Moving averages from short-term to long-term are arranged in a bullish trend from top to bottom.

For example: MA5 Daily Moving Average > MA10 Daily Moving Average > MA20 Daily Moving Average > MA60 Daily Moving Average

Strong downward trend: Moving averages from long-term to short-term are arranged in a bearish trend from top to bottom.

For example: MA60 Daily Moving Average > MA20 Daily Moving Average > MA10 Daily Moving Average > MA5 Daily Moving Average

Oscillating trend: Long-term and short-term moving averages are in a chaotic crossover within a range, with no clear upward or downward direction.

Summary:

When moving averages are arranged bullishly upwards, the bulls are strong, suitable for holding stocks and watching or buying on dips near the moving averages.

When moving averages are arranged bearishly downwards, bears are dominant, suitable for exiting and watching or reducing positions during rebounds.

When moving averages are flat with narrow oscillations, the trend is unclear. One can either hold off on positions or trade small amounts, buying high and selling low, waiting for the trend to clarify.

2. Observe support and resistance

Support role: When stock prices fall near a certain moving average, a stop in the decline occurs, and a rebound begins; this moving average then provides support to the stock price.

This is because moving averages represent average costs. For example, the 20-day moving average represents the average holding cost in the market over the past 20 days. When the stock price falls near the 20-day moving average, it reaches the cost line for everyone.

From a psychological perspective, since no one has made a profit yet, they are unwilling to sell. Those waiting outside feel that the price is relatively suitable and start to buy at the bottom, forming support for the stock price and starting to rebound.

Resistance role: When the stock price rises near a certain moving average and cannot continue to rise, starting to fall, that moving average then exerts a suppressive effect on the stock price.

For example, when the stock price rises near the 20-day moving average and reaches everyone's cost zone, many people worry that the price will fall again and hurriedly sell to protect their capital. Then, those waiting outside see excessive selling pressure and are also reluctant to enter the market, resulting in weak upward momentum, forcing the price to turn down.

This is just an example with the 20-day moving average; the selection of moving averages depends on the specific type of trader you are:

Ultra-short traders may refer to the 5-day and 10-day moving averages;

Swing traders may refer to the 20-day and 60-day moving averages;

Long-term traders may refer to the half-year and yearly lines.

The logic is that when the stock price stands above the corresponding moving average and does not break it when pulling back, forming support, one can buy; if it breaks, one should sell.

It is important to note not to get attached to a single moving average; it is best to use multiple moving averages in combination. For example, if both short-term and medium to long-term moving averages are arranged bullishly, it indicates that the market is forming a combined force, and the upward momentum is strong. When a pullback occurs, and it stabilizes, one can buy on dips.

For beginners, it is advisable to avoid participating in stocks with a downward trend, as the difficulty of operation is high, and rebounds are hard to control.

As shown in the image, once an upward trend is formed, it is hard to change in the short term. Each time a pullback occurs at the support level, it is more friendly for beginners.

3. Use moving average golden cross/dead cross to find buy and sell points

Golden Cross: Refers to the short-term moving average crossing above the long-term moving average; the point where this occurs is called the golden cross. It indicates that there is strong bullish sentiment in the short term, with a higher desire to buy, driving the average cost upwards.

As shown in the image, the 5-day moving average crosses above the 20-day moving average, forming a golden cross, with volume moderately increasing, and the stock price begins to rise, suitable for buying near the golden cross.

Dead Cross: Refers to the short-term moving average crossing below the long-term moving average, forming a dead cross. This indicates that there are many short-term bearish participants, all selling, forcing the stock price down, causing the short-term average cost to be lower than the long-term average cost, and the trend may turn downward or oscillate.

When using golden cross/dead cross to find buy and sell points, attention should be paid to the following points:

1. Prioritize golden crosses where the stock price is overall in an upward trend; these signals are more reliable.

2. Combine trading volume to verify effective or ineffective golden crosses/dead crosses.

★ When the trading volume increases moderately, the golden cross signal that appears is more reliable, indicating that real capital is entering the market.

★ If trading volume continues to decrease, a golden cross may be a false breakout, be cautious of institutions inducing buying and then selling.

★ If trading volume surges at high levels while the stock price does not rise, a dead cross signal is more reliable, indicating panic selling.

★ If trading volume decreases and a dead cross occurs, it may be a continuation pattern in an upward trend, with institutions inducing selling to get rid of floating positions for further upward movement.

3. Precautions for using moving averages
1. Moving averages have lagging properties and should be analyzed in conjunction with volume, price, KDJ, and other indicators.

2. Choose moving average periods that match your trading style.

3. Choose moving averages based on different market conditions.

In cases of clear one-sided trends: Try to use medium to long-term moving averages as references to avoid being disturbed by short-term signals.

In oscillating markets: Use short-term moving averages as references, tighten stop-loss and take-profit levels, and trade quickly, buying high and selling low.

4. More moving averages do not necessarily mean better; generally, using 2-3 moving averages is sufficient. Using too many may lead to confusing signals.

5. Try to only participate in stocks with an upward trend, avoiding downward trends, especially for beginners. Aligning with the trend is a wise choice.

6. Trading discipline is paramount; whether using a single moving average or a dual moving average strategy, stop-loss should always come first. This is the core element of any trading system, and a trading system without stop-losses is meaningless.

In Conclusion
Trading does not have to be complicated; in fact, the simpler it is, the longer it lasts.

Some have established complex trading systems and found it difficult to achieve stable profits despite referencing various indicators; others have managed to achieve compound growth just by using moving averages.

The core is not the system but the discipline.

No matter how good the system is, without trading discipline, everything is in vain.

Moving averages are not a magic weapon for success. Their core significance lies in providing you with references to see the big trend and manage dynamic positions with support and resistance, giving you a standard for executing discipline.

However, how to use them specifically depends on the individual, on your emotions and psychology. — A sharing from a fellow A9 brother!