I have been in the cryptocurrency market for ten years. Six years ago, I quit my job to trade cryptocurrencies, and from being in debt to becoming wealthy, what truly changed me was a night five years ago. The words of an old mentor struck me profoundly, allowing me to correct my position and understand the eight major periods that all cryptocurrency traders must go through, continually reflecting on them, and finally reclaiming all that I had lost!
Perhaps in the eyes of some people, retail investors are always lambs waiting to be slaughtered!
If you are preparing to enter the cryptocurrency market, I sincerely hope this article can help you. As someone with decent summarizing skills and reasonable expression, I believe some of my thoughts might be helpful to you. Alright, enough chit-chat, let's get straight to the point~
When it's hard to make a selling decision in cryptocurrency trading, ask yourself: If your analysis is right, why is the market moving in the opposite direction? The only reason is that you are wrong because the market does not make mistakes!
After ten years of ups and downs in the cryptocurrency world, from huge losses to substantial returns, I have summarized the following trading disciplines and insights:
These 19 iron rules can help cryptocurrency investors avoid many risks; however, the cryptocurrency market is complex and ever-changing, and we cannot apply them rigidly. We need to analyze in conjunction with actual situations, continuously learn, and accumulate experience to minimize mistakes and securely guard our wallets, achieving steady wealth growth.
Using the strategy of 'the eight major rules of Gu Lan Bi + moving averages' to find buy and sell points reveals four perfect structural patterns.
Prices can sometimes fluctuate greatly and are difficult to predict. This is why moving averages are so popular and are one of the trading indicators frequently used by top traders. Using the strategy of 'the eight major rules of Gu Lan Bi + moving averages' to find reasonable entry and exit points, we believe this is a classic technical combination in technical analysis and is definitely worth a good look.
First, you need to recognize how moving averages assist us in judging bullish and bearish trends. In the section where the moving average is rising on the left, it indicates an upward trend. In the section where the moving average is falling on the right, it indicates a downward trend. The basic function of moving averages is to judge the direction of the market.
In practical operations, it is easy to see on the chart, for example, when the market keeps fluctuating downwards, the moving averages are going down. Therefore, when we see the moving averages going down, we should try not to hold stocks or any positions. Only when the moving averages are moving upwards is it ideal to hold stocks.
It is important to note that the rising or falling of moving averages indicates the general direction, not that they rise or fall every day! As you observe the market, you know that there will always be several days with bearish or bullish candles; prices fluctuate up and down and are not fixed.
Then, we can also use the 'moving average + candlestick pattern' method for trading. For example, we usually use Dow Theory to observe candlestick patterns. If we see that the price's lows are gradually rising, this belongs to a bullish pattern. In the right half of the image below, we observe that the price is gradually forming lower highs.
Therefore, the processes of rising and falling need to look at different points of focus. During an uptrend, we need to see where the low points are and where the support is. During a downtrend, we need to see where the high points are and where the resistance is.
We need to memorize the phrase 'look for support when prices rise, and look for resistance when prices fall'; this is very important!
If during the upward process, you keep looking for resistance, then you are definitely misjudging the direction. You should not guess where the price won't move during an upward process, as it is highly likely that you won't make money from the trend. Conversely, during a market downturn, you should not constantly look for support points. Desperately guessing where the price won't fall can lead to counter-trend trading.
Today, we will focus on how to use the strategy of 'the eight major rules of Gu Lan Bi + moving averages' for practical operations.
When we apply the eight major rules of Gu Lan Bi plus moving averages, we first need to know that the eight major rules of Gu Lan Bi consist of four buy points and four sell points. We mark the buy points with blue dots: B1, B2, B3, and B4. The sell points are marked with green dots: S1, S2, S3, and S4. Let’s understand what each buy point and sell point represents.
The eight major rules of Gu Lan Bi utilize the changes between prices and moving averages, including their interrelationships, the way prices break through moving averages, the degree of divergence between the two, and various situations, summarizing eight different buying and selling point scenarios as the basis for entry and exit.
Four major buy points
◎ B1: When the moving average gradually transitions from a downtrend to a horizontal consolidation (flat) or upward trend, and the stock price breaks above the moving average from below, it can be seen as a buy signal.
◎ B2: The moving average is rising, and after the price rises for a while, it pulls back for consolidation, but does not break the moving average and continues to rise, it is considered a buy point.
◎ B3: The moving average is rising, but the price breaks below the moving average and then continues to rise. During the upward process, the commonly encountered points are the B2 and B3 buy points; conversely, B1 is less likely to be touched because the trend is just beginning and may not yet be certain.
◎ B4: When the price drops sharply, not only breaking below the moving average but also deviating far below it, and then the price begins to rebound and approaches the moving average, it can be seen as a buy signal.
Four major sell points
◎ S1: When the moving average transitions from an uptrend to a horizontal line or downtrend, and the price falls below the moving average from above, it can be seen as a sell signal.
◎ S2: The moving average is bending down, the price rebounds but does not surpass the moving average and continues to fall.
◎ S3: Similarly, when the moving average is bending down, the price rebounds and breaks through the moving average but continues to fall.
◎ S4: When the stock price rises sharply and deviates far above the moving average, then reverses and falls back toward the moving average, it can be seen as a sell signal.
In summary, this means that the 4th buy point and the 4th sell point in the eight major rules of Gu Lan Bi occur when the divergence is too large. For example, in the left segment of the upward trend, the price diverges too much from the moving average, and the pullback position is S4. The B4 buy point occurs when the moving average is bending down, and the moving average diverges too much from the price, indicating an oversold rebound position.
In the eight major rules of Gu Lan Bi, the most important is the text in the red box in the picture, which refers to the 2nd and 3rd buy points, as well as the 2nd and 3rd sell points. Because in trend trading, you will often observe these entry points.
The key is to trade in the direction of the trend; during this upward segment, you can rely on the two buy points of the eight major rules of Gu Lan Bi to buy. During this downward segment, rely on the two sell points of S2 and S3 to short.
Looking at the actual stock price chart, for example, the image below shows the price chart of a certain stock, with moving averages overlaid for comparison. Using the eight major rules of Gu Lan Bi, we can find the 2nd or 3rd buy point when the price approaches the moving average. This can also be applied to strong stocks, as long as we utilize B2 or B3 of the eight major rules of Gu Lan Bi.
It should be said that the eight major rules of Gu Lan Bi are the foundation for all subsequent derived uses of moving averages. Below, we will take the four methods of entering when moving averages rise as an example to discuss in detail.
A Mode: Enter long when the price breaks above the moving average.
Moving averages serve as support and resistance. When the price breaks above the moving average, it means the original resistance level has been breached, which is a signal to consider entering. However, to avoid interference from market noise, traders can set conditions to filter out false breakout signals. For example, a large bullish candle breaking the moving average or the closing prices of two consecutive K-lines being above the moving average can improve trading accuracy.
Derivative trading modes can take many forms. For example, when the short-term moving average crosses above the long-term moving average, one can go long; or when the price breaks through the outer band of the Bollinger Bands, one can go long. Additionally, when the short-term moving average breaks upward above the medium-term moving average and the long-term moving average is also trending upward, one can go long. These strategies are based on the combination of moving averages and price indicators to capture potential buy signals.
A-type opening modes, when the moving averages are flat and the market lacks a clear trend, often lead to frequent entry and exit operations with significant capital drawdown, which makes them less widely accepted by traders.
B Mode: The price pulls back to near the moving average and receives support, entering long.
In the case of a major upward trend, using market pullbacks to enter trades at key positions is a typical strategy. This approach is also one of the more popular trading models currently in the market.
C Mode: After a price pullback breaks below the moving average and receives support, the price remains above the moving average to go long.
Essentially, it is the same as B Mode. Based on the major upward trend, using pullbacks at key positions to enter trades is a typical strategy and is also one of the more popular trading models at present.
Derivative trading modes include dual moving average and triple moving average strategies. In these strategies, the price may break below the short-term moving average but must not break below the long-term moving average.
D Mode: Enter short after the price quickly moves far from the moving average.
This opening mode belongs to counter-trend trading and is not recommended for standalone use. We should take advantage of the fluctuations during pullbacks (such as B and C modes), rather than directly trading the pullback segment. This can reduce risks and increase the success rate of trades.
Trend judgment
In addition to using the B and C modes for entering with moving averages, the most core and common function of moving averages is to judge market trends. Its advantage lies in its simplicity and significant effect, applicable to various assets and different time periods. When the moving average is rising, it indicates an upward trend; when it is falling, it indicates a downward trend.
Derivative trading modes include dual moving average and triple moving average strategies. In the dual moving average mode, when the short-term moving average crosses above the long-term moving average and points upwards, it indicates an upward trend; conversely, it indicates a downward trend. In the triple moving average mode, when the short-term moving average is above the medium-term moving average, and the medium-term moving average is above the long-term moving average, and all three are pointing upwards, it indicates an upward trend; conversely, it indicates a downward trend.
Using moving averages for trailing stop-loss exit.
In the eight major rules of Gu Lan Bi, moving averages can serve as both support and resistance, helping us find entry points, and can also be used as the basis for trailing stop-loss. When the price breaks above the moving average, it usually means we need to exit. Especially in long trend trades, when the price falls below the moving average, it is a clear exit signal.
In short trend trading, when the price breaks above the moving average, we exit.
In practical applications, we can combine other factors to filter out false breakouts. For example, requiring that the K-line must break through the moving average with a long candle body, or that the closing prices of two consecutive K-lines both break through the moving average. Additionally, the K-line that breaks out needs to be accompanied by increased trading volume (applicable to stocks and futures). We can even use multiple moving averages and set conditions to choose to exit only after the K-line breaks through multiple moving averages. These methods can effectively improve the accuracy of trades.
The parameters of the moving average need to be adjusted according to an individual's trading system. In fact, the essence of all moving averages is the same. Long-term moving averages are less sensitive to price changes and can capture larger market movements but may end up swallowing a lot of floating profits. In contrast, short-term moving averages are more sensitive and can capture more trend occurrences, but excessively high trading frequency may affect the overall performance of the system. Therefore, it is crucial to set moving average parameters reasonably.
Starting from the moving average indicator, we can further explore other technical indicators, such as Bollinger Bands and parabolic SAR. These indicators can also be used as exit points for trailing stop-loss, helping us better manage risks and seize trading opportunities.
Three uses of moving averages: enter in trend, take profit on exit, and buy the dip in counter-trend.
The advanced use of moving averages is to use them as a condition for trailing stop-loss. For instance, when the moving average continues to move upward, if the price does not break below the moving average, we can continue to hold the position. Only when the price breaks below the moving average do we consider taking profits. This method can help us lock in profits in a trend.
There are three main uses for moving averages. First, enter the market according to the eight major rules of Gu Lan Bi, that is, buy when the price approaches the moving average or when there is a rebound after the price approaches the moving average. Second, moving averages can be used as the basis for trailing stop-loss, for example, when going long, if the price rises for a while and then falls below the moving average, exit the position. Finally, moving averages can also be conditions for counter-trend entry, for example, after the market has dropped for a while, when the price breaks above the moving average, we can buy the dip; or after the market has risen for a while, when the price breaks below the moving average, we can short again. This means that the same moving average can have different applications depending on the market environment.
Summary
Trading systems designed primarily around moving averages usually have lower win rates and higher drawdowns, so it is recommended to mainly use moving averages to judge market trends. One can grasp entry positions through B and C structural patterns, and it is not recommended to use A structural patterns and their derived methods for entry to avoid potential risks. At the same time, it is advisable to avoid using D structural patterns for entry. Moving averages can also serve as a method for trailing stop-loss to help manage risks.
In summary, there are four common reasons for missing out.
First of all, we are always lazy and afraid of trouble.
Even when seeing Bitcoin prices continuously hitting new highs, we are unwilling to actively understand. We hold a mindset that it could crash at any time, waiting to see the joke. The root of this mentality lies in our desire for money not being strong enough, causing us to miss various opportunities.
Secondly, we have an innate resistance to new things.
We tend to prefer familiar things and instinctively resist unfamiliar things. However, if we can combine the unfamiliar with the known and transform it into something familiar, we can more easily accept new things.
However, most people blindly criticize and ridicule Bitcoin without understanding it, believing it to be a bubble. This undoubtedly causes us to miss out on opportunities for wealth. Only when we fully understand and recognize the value and potential opportunities of new things can we make wise decisions.
In addition, there is the spirit of adventure, or the gambler's mentality.
Even if we have fully recognized the investment value of Bitcoin, we are still afraid of failure and unwilling to invest too much money. This mentality limits our investment scale and potential returns.
We always tend to listen to others' opinions and are unwilling to deeply research new things ourselves. This behavior not only causes us to miss opportunities for wealth but also limits our personal growth and development.
If we cannot overcome these issues, even if another opportunity for wealth arises, we are likely to miss it.
Follow Su Ge closely, use precise strategy analysis, and select with huge investments in AI big data to position yourself in an unbeatable place? The market never lacks opportunities; the question is whether you can seize them. Only by following experienced people and the right people can we earn more!