First, the moving average system, which increases your winning rate by 35%. From January this year to now, in 9 months, I have easily turned 50,000 into 1 million using this moving average strategy.
Returning from complexity to simplicity has become a trend in the development of the trading industry to date. Among various technical analyses, the most fundamental and practical one is probably the moving average.
1. Single moving average, understand the positional relationship
Besides candlesticks, the first indicators that everyone comes into contact with are usually moving averages.
Moving averages reflect the average price level over a period of time, so the simplest usage is to observe the relationship between moving averages and candlesticks. If the candlestick remains above the moving average, it indicates that the recent trend is overall strong, as long as it does not break below the moving average, it will continue.
When the candlestick truly breaks below the moving average, it is usually accompanied by a significant downward trend.
In addition to continuously running above or below the moving average, if the candlestick and moving average repeatedly intertwine, it usually indicates a consolidation market. For example, this segment shows a clear range. When the market breaks out, it is usually accompanied by large bearish and bullish candlesticks, followed by a small pullback to confirm support, and then further rebound.
This trend is a very classic Wyckoff trading method + crossing the creek trend.
In the latest introduction of Wyckoff 2.0 by EBC, the operating rules of candlesticks during the accumulation and distribution phases are explained in detail. Combined with the entanglement patterns of moving averages, it can help us further confirm the price direction and further validate the continuity of the trend through patterns moving away from the value area.
In addition to observing the positional relationship between candlesticks and moving averages, you should also be adept at using moving averages of different periods to identify trends.
Short period moving averages, due to having fewer samples, sometimes align closely with the overall trend, making it difficult to detect significant trend changes. For instance, with a 10-day moving average, looking at just one moving average, it is hard to say that you can identify the direction of the trend.
Thus, long-period moving averages have greater representativeness.
The usage of long-period moving averages is similar to the above. As long as it is above the moving average, it has continuity. For example, in this wave of 2-3 years, if you are doing trend trading, just looking at this moving average is enough.
Since the long-term price trend will still return to near the moving average, another use of the long-term moving average is to observe the deviation level between the candlestick and the moving average. If it is significantly away from the moving average, and a clear double top pattern appears, it is often a very good entry opportunity.
This situation also applies to finding the bottom of a range. The only drawback is that this method has a longer cycle and is only suitable for long-term traders.
2. Multiple moving averages, understand the cycle relationship
Compared to single moving averages, multiple moving averages are a more commonly used method.
When a short-period moving average crosses above a long-period moving average, it indicates that the recent price is stronger than the price in the longer period, and the likelihood of an upward breakout is very high. This is called a golden cross, while the opposite is a death cross.
Before a golden cross or death cross occurs, both the long and short period moving averages must flatten out to create conditions for crossover. As shown in the figure below, once two moving averages turn and the short-period moving average is faster than the long-period one, it often signals a crossover. If this happens to be at the bottom of the market, it is often a very effective golden or death cross.
However, golden crosses and death crosses are not without drawbacks, one of which is lagging. For rapidly declining markets, the market may have already moved on, but the death cross only starts to appear, at which point you might even sell at the bottom.
For this kind of market, you must cooperate with the breakout relationship of the candlestick and moving average. When both long and short moving averages begin to turn, and the candlestick simultaneously breaks through two moving averages, it is already an entry opportunity.
If a death cross has already formed, in addition to managing stop losses and riding a wave of decline, you can also judge based on the relationship between volume and price.
For example, in the EBC order flow tool, real-time Tick market data records every order transaction and notes the POC at which the buying and selling volume is the largest for each candlestick. At the same time, the order flow tool also calculates the net order quantity of buying minus selling for each candlestick in real-time, referred to as Delta, forming a cumulative difference chart.
As shown in the figure below, when the death cross appears, the POC appears at the bottom of the market. This indicates that both sides of the market begin to intervene at this price, and the bulls prevent the market from continuing to decline, forming a resistance pattern. Meanwhile, the Delta below has formed a lower shadow, indicating that the bears encountered resistance below and had to turn to buy.
This series of signals can help us confirm that this is not a time to short.
The second usage of multiple moving averages is actually very similar to observing the relationship between moving averages and candlesticks. If the short period moving average continues to run above the long period moving average, it usually represents the continuity of the trend.
In Mr. Martin Pruglin's (Technical Analysis), trend lines are also introduced into moving average analysis. He believes that when price trends and moving averages break out simultaneously, it represents a dual signal confirmation, which often has higher accuracy.
There is also a special situation known as the entangled shape of moving averages. This position usually indicates that the market is making a directional choice, but once the direction is confirmed, it often leads to a trend market. Moreover, the tighter the moving averages are bound, once they open up, the continuity of the trend becomes stronger.
There is also a shape formed by three moving averages, called a death cross triangle or golden triangle.
This pattern usually consists of long, medium, and short cycles. I generally use 60, 120, and 200-day moving averages. The death triangle and golden triangle can largely avoid the impact of ineffective death crosses. Plus, with different cycle trends aligning, sudden drops or surges are also rare, making the signals more reliable.
3. VWAP, incorporating trading volume into moving averages
Actually, at this point, most candlestick patterns are within the scope that everyone is familiar with.
However, moving averages have a drawback: they calculate the average of all prices without any emphasis. In reality, large orders often have a quick and direct impact on the market. Considering the order quantity, such moving average prices become more effective.
This is the volume-weighted moving average, also known as VWAP.
Here's a very direct comparison chart. In the figure below, the 50-day VWAP is clearly above the regular 50-day moving average. Therefore, when actually pulling back, you will find prices closer to VWAP rather than EMA prices. If you hope to confirm support through the pullback and buy, you may never be able to buy at this price.
For example, in the figure below, you will find that the VWAP here is almost vertical. This situation will not occur in a smooth moving average. The VWAP here indicates that the market is significantly influenced by large orders, sending an early warning signal.
The usage of VWAP is also very simple: as long as the candlestick stays above VWAP, it is a buy signal; conversely, it is a sell signal.
However, it is unfortunate that VWAP is calculated based on trading volume, so only by connecting to a trading volume data source can this indicator be developed. For example, EBC directly connects to the Chicago Mercantile Exchange, with 10-level tick data, so the EBC order flow tool can utilize this indicator.
Compared to the general VWAP indicator, the EBC order flow tool extends VWAP to standard deviation bands.
After adding deviations, two additional curves are added to both sides of VWAP. These two curves are good resistance and support levels. Whenever the market price touches these lines, it will encounter obvious resistance and support, helping us better identify resistance zones.
Similar to Bollinger Bands, when the deviation between these lines is too great, a correction often occurs. Through the position relationship of the candlesticks, we can know whether we have entered an overbought or oversold range, allowing for better decision-making.
In summary, moving averages are a complete trading system. They are simple but reflect the essence of price changes, identifying market trends through the speed of changes in long and short periods. Even new traders can maneuver easily in trading as long as they master the moving average system. This is precisely what is meant by simplicity leads to greatness.
Bull market profit rules:
1. Once an uptrend begins, it will not easily end. Therefore, do not be afraid of the major pullbacks that occurred earlier; boldly enter the market. The most troublesome thing is to continue waiting for a lower point, as waiting longer will only lead to higher prices, and you'll miss the opportunity.
2. In a bull market, many needles are inserted. If your position is not fully loaded, try to wait for a pullback and go all in directly. Otherwise, you will often be injected, and most people cannot withstand it.
3. You must manage your position well. It is best to layout several key sectors because if you are fully invested in one sector and that sector does not move in the short term while other sectors are rising, it is the most uncomfortable situation. If you chase after it, you will get stuck, and after clearing, it will take off again in just a few days. Many people have experienced this, so either don't buy, or if you buy, you must hold firmly. Your coins will eventually rotate, and even the worst coins in a bull market can achieve five to ten times.
4. The market is always rising amid divergence. What a bunch of people criticize is often an opportunity, while when everyone is optimistic, it is actually a risk.
5. Don't always think about short-term high selling and low buying. Once you get off midway, you will find it hard to return. Playing short-term back and forth, it’s better to let others lie still and earn more.
6. Every time the market pulls back, there will be panic, and people say the bull has run away. The fact is that it takes at least three or four major pullbacks for a bull market to possibly end. So don't be afraid, you must have a broader perspective. As long as what you hold is not garbage coins, even the worst can achieve five to ten times. After a bull market, making two to three times in spot trading is really nothing.
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