Double Moving Average Strategy
The Principle: The 'Past and Present' of Moving Averages
Moving Average, an indicator that is always unavoidable in pattern analysis.
The moving average was first proposed by American investment expert Joseph E. Granville in the mid-20th century, and it is still widely used today, becoming an important indicator for determining buy and sell signals. From a statistical perspective, the moving average is the average of historical prices and can represent the average trend of stock prices over the past N days.
In July 1962, Joseph E. Granville proposed the famous eight rules of buying and selling in his book. Timing can be determined simply using stock prices and moving averages; the method is simple and effective, quickly gaining popularity in the market after its introduction. In particular, the golden cross and death cross signals are still used today.
Among Granville's eight rules, four are used to determine buying opportunities, while the other four are used to determine selling opportunities. The buying and selling rules correspond to each other and are distributed on either side of the high points (except for Buy 4 and Sell 4). The contents of the rules are as follows:
Buy 1: The moving average is generally trending upwards, and the stock price crosses above the moving average from below, forming the first buying point, known as the golden cross.
Buy 2: The stock price shows signs of decline but has not yet fallen below the moving average. At this point, the moving average becomes a support line, forming the second buying point.
Buy 3: The stock price is still above the moving average but is showing a sharp downward trend. When it falls below the moving average, the third buying point appears.
Buy 4: Both the stock price and the moving average are in a downward channel, and the stock price is below the moving average, significantly deviating from it, forming the fourth buying point.
Sell 1: The moving average changes from an upward state to a slow downward state, and the stock price also begins to decline. When the stock price falls below the moving average, this is known as the death cross, forming the first selling point.
Sell 2: The stock price is still below the moving average, but it begins to show an upward trend. When the stock price is very close to the moving average but has not yet broken through, the moving average becomes a resistance line, forming the second selling point.
Sell 3: The stock price finally breaks through the moving average and is above it. However, this does not last long, and the stock price begins to decline until it falls below the moving average again, forming the third selling point.
Sell 4: Both the stock price and the moving average are rising, but the rate of increase in the stock price is much faster than that of the moving average. When the stock price significantly deviates from the moving average, the fourth selling point appears.
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