Article declaration: All content is derived from the original Chan theory, infused with my own insights. To grasp the most original insights, one must delve into the original text. From this note onwards, we will delve into specific operational aspects, such as the moving average system introduced in this note. The original author used the intimate contact between men and women to express this, but I am a novice in emotions, making it difficult to comprehend. Therefore, I have rewritten it in my own version. If you cannot understand, please refer to the original text.
21. The simplest and most practical technical indicator system is the so-called moving average system. The moving average system is clearly not a very precise system, with too many false signals. If you buy when a certain moving average is broken and sell otherwise, your success rate will definitely not be high, especially when this moving average is short-term. The truly useful moving average system is a technical evaluation system composed of several moving averages representing short, medium, and long-term trends.
22. Note that any technical indicator system is essentially an evaluation system, which tells you the strength or weakness of the evaluation object under the standards of this system.
23. The primary selection criteria for applying any technical indicator system are related to the amount of capital used and the operation time. Without this consideration, any further discussion is meaningless. Therefore, everyone should consider how to choose the corresponding parameters based on their actual situation. As long as they understand the reasoning behind it, the application naturally lies in the principle, not in the technique.
24. The moving average system must involve the relationship between each moving average. The relationship between any two moving averages is essentially an 'intersection' problem. Based on the possible intersection situations, the corresponding relationships can be completely classified: sunrise, moonrise, and sun and moon alternating. Treat the short-term moving average as the 'sun' and the long-term moving average as the 'moon'. The 'bright moon high in the sky' signifies a bearish market, while 'great sun in the sky' signifies a bullish market. To make money, we need more 'great sun in the sky'. (Note: Light in the universe is scarce, thus the sun representing bulls implies that the time of price increase is generally limited, most of it is darkness.)
25. Sunrise: The short-term moving average flattens slightly before continuing along the original trend.
Moonrise: The short-term moving average approaches the long-term moving average but does not break below or above, and then continues along the original trend.
Sun and moon alternating: The short-term moving average breaks below or above the long-term moving average, or even shows repeated entanglement, like glue.
26. Sunrise occurs with a relatively low probability, generally only during particularly strong trends, and overly explosive trends are unlikely to last long, so subsequent fluctuations often occur. Moonrise is the most common occurrence during any basic trend process, especially under the condition of 'bright moon high in the sky', it is generally this way. Once moonrise occurs, the rebound is basically about to end. In the situation of 'great sun in the sky', the probability of adjustment ending is also quite large, but one must also guard against 'moonrise' turning into 'sun and moon alternating'.
28. Note that any market reversal is highly likely to be triggered by 'sun and moon alternating'. Here, there are two situations: one is first 'sun and moon alternating', then following the original trend to create a big climax, creating a trap, and then reversing; the other is repeated 'sun and moon alternating', constructing a turning box, with the following climax indicating a change in 'heavenly position'.
29. Under the condition of 'bright moon high in the sky', once 'sun and moon alternate' occurs, it must be closely watched, especially when this alternating occurs after a long-term 'bright moon high in the sky', more caution is needed. The subsequent decline is often a good opportunity to buy, because the probability of a bearish trap is extremely high. It must be reminded that this does not apply to the first 'sun and moon alternating' that forms the trend. However, there will be a climax after 'sun and moon alternating'; the only difference is the 'heavenly position', and the key judgment lies in the 'heavenly position', not whether there is a climax.
30. The knowledge of 'intersection' aims to solve the buying problem, but the immediate issue upon buying is the risk problem. There is risk associated with buying at any position, and unless the market has moved, no one can confirm in advance how exactly the 'intersection' will occur, even with the simplest moving average system.
