Bullish when the price is above the 20-day moving average, bearish when the price is below the 20-day moving average.
### One, Definition and Significance of the 20-Day Moving Average
1. Definition: The 20-day moving average is the weighted average of the closing prices over 20 trading days. Connecting the points calculated each day forms the moving average. It indicates the average trading price level of the stock over the past 20 days (approximately one month).
2. Significance: The 20-day moving average is an important relay line for examining the transition of stock prices from short-term trends to mid-term trends. It can avoid the shortcomings of trading too frequently with the 10-day moving average, resulting in too many mistakes and high trading costs, while compensating for the lagging nature of long-cycle moving averages.
### Two, Application Methods of the 20-Day Moving Average
1. Support and Resistance Role:
- When the stock price is above the 20-day moving average, the 20-day moving average provides support for the stock price (long position); when the stock price is below the 20-day moving average, the 20-day moving average becomes a resistance level for the stock price (short position).
2. Buy Signal:
- After a round of decline in the stock price, if it breaks above the 20-day moving average during the adjustment process, accompanied by an increase in trading volume, it is considered a technical buy point.
- When the 20-day moving average is rising, and the stock price briefly falls below the 20-day moving average during a pullback but quickly recovers, while trading volume is not large, consider increasing the position.
3. Sell Signal:
- After the stock price rises for a while, if the 20-day moving average turns down and the stock price operates below the 20-day moving average, it should be considered a sell signal.
- When the 20-day moving average flattens at a high level, be cautious of the stock price falling below the 20-day moving average. If the closing price falls below the 20-day moving average for two consecutive days, and the 20-day moving average shifts from bullish to flat or bearish, it is advisable to liquidate positions promptly.
### Three, Analysis of the Advantages and Disadvantages of the 20-Day Moving Average
1. Advantages:
- It is possible to capture almost all profits in a bull market.
- It can avoid almost all declines in bear markets.
- It can capture not only bull markets but also almost all mid-term fluctuations.
2. Disadvantages:
- In a volatile market, earn more and lose less, with profits and losses being roughly equal. At this time, the buy and sell signals from the 20-day moving average may become ineffective.
### Four, Considerations When Using the 20-Day Moving Average
1. Use in conjunction with other moving averages: The 20-day moving average is often used in combination with the 5-day, 10-day, 30-day moving averages, etc., to improve the success rate of trades. The success rate of trading with a single moving average is usually lower than that of using a combination of moving averages.
2. Pay attention to changes in trading volume: The coordination of trading volume is crucial for determining the trend of stock price fluctuations. Especially when a buy signal appears, it is necessary to have an increase in trading volume to confirm it.
3. Flexibly Adjust Trading Strategies: The market is constantly changing, so investors should flexibly adjust their trading strategies based on market conditions. For example, in a volatile market, one can reduce the number of trades or choose to wait and see.
### Five, Case Analysis
Taking a specific stock as an example, when the stock price crosses above the 20-day moving average and stabilizes, it indicates a short-term bullish market. At this point, investors can consider entering a long position. As the stock price rises, when the 20-day moving average also begins to tilt upwards, it further confirms the upward trend of the market. However, when the stock price rises to a certain high level, if the 20-day moving average starts to flatten or shows signs of turning downwards, investors should be cautious of the market reversal risk and adjust their trading strategy in a timely manner.
