An A9 successful trader thoroughly explained 'using moving averages for swing trading'

Never missed, a remarkable feat

The moving average is the simplest indicator, yet the most classic. It represents the average price over N periods, reflecting the current average price of the market, and can indicate whether the current position is bullish or bearish.

I. What is a Moving Average?

Moving average: Also known as the moving average line, it calculates the average closing price of stock prices (or currency prices) over the most recent N days, and then connects them to form a moving average line.

The essence of moving averages is to reflect the average holding cost and stock price trend of the market over a period of time.

Commonly used moving averages include:

MA5 moving average: Average cost over the past week

MA10 moving average: Average cost over the past two weeks

MA20 moving average: Average cost over the past month

MA60 moving average: Average cost over the past quarter

MA120 moving average: Average cost over the past six months

MA250 moving average: Average cost over the past year

Among them: MA5 and MA10 moving averages are short-term moving averages; MA20 and MA60 moving averages are medium-term; MA120 and MA250 moving averages are long-term.

In daily discussions, we often mention terms:

Weekly line - MA5 moving average

Monthly line - MA20 moving average

Half-year line - MA120 moving average

Annual line - MA250 moving average

II. Three Core Uses of Moving Averages

1. Determine the direction and strength of stock (or currency) prices

① Upward moving averages: Indicate that the market's average cost is rising, with bulls having the advantage, representing an upward trend. Suitable for holding and observing or finding opportunities to buy at lower levels.

② Moving averages downward: Indicate that the market's average cost is decreasing, with bears having the advantage, representing a downward trend. Caution is advised when entering the market; those already holding should tighten take profit and stop loss, wary of declines.

③ Flat moving average: Indicates a flat trend, with the stock price fluctuating slightly within a range, and balance between bulls and bears. Suitable for waiting or buying high and selling low.

As for trend strength, it requires judging by multiple moving averages:

Strong rise: Moving averages arranged from short-term to long-term, from top to bottom, show a bullish trend.

For example: MA5 moving average > MA10 moving average > MA20 moving average > MA60 moving average

Strong decline: Moving averages arranged from long-term to short-term, from top to bottom, show a bearish trend.

For example: MA60 moving average > MA20 moving average > MA10 moving average > MA5 moving average

Fluctuating trend: Long-term and short-term moving averages cross chaotically within a range, with no clear upward or downward direction.

Summary:

Bullish moving averages arranged upwards indicate strong buying, suitable for holding and observing or buying at lower levels near the moving average.

Bearish moving averages arranged downwards indicate that bears have the advantage, suitable for staying out or reducing positions during rebounds.

Flat moving averages indicate narrow fluctuations, with unclear trends. It is advisable to stay out or trade with small positions, buying high and selling low while waiting for the trend to clarify.

2. Observe support and resistance

Support role: When the stock price falls near a certain moving average, stops falling, and starts to rebound, that moving average acts as a support for the stock price.

The reason for this is that moving averages represent average costs; for example, the 20-day moving average represents the average holding cost of the market over the past 20 days. When the stock price falls near the 20-day moving average, it reaches everyone’s cost line.

From a psychological perspective, people have not made money yet and are reluctant to sell; meanwhile, those on the sidelines think the price is reasonable and start buying at the bottom, forming support for the stock price and initiating a rebound.

Resistance role: When the stock price rises near a certain moving average and fails to rise further, starting to drop, that moving average exerts a suppressive effect on the stock price.

For example, when the stock price rises near the 20-day moving average, reaching the cost zone for many, many are worried about further declines and rush to sell to protect their capital. Observers outside see the selling pressure is too great and are reluctant to enter the market, resulting in a weak upward movement of the stock price, which must turn down.

This is just an example using the 20-day moving average; the choice of moving averages depends on what type of player you are:

For very short-term players, you can refer to the 5-day and 10-day moving averages;

For swing traders, you can refer to the 20-day and 60-day moving averages;

Long-term players can refer to the half-year and annual lines.

The logic is that when the stock price stands above the corresponding moving average and pulls back without breaking it, forming support, it can be bought; if it breaks, it should be sold.

Here, attention should be paid not to be obsessed with a single moving average; it is best to combine multiple moving averages. For instance, when both short-term and medium-to-long-term moving averages are in a bullish arrangement, it means the market is forming a collective force and the upward momentum is strong. Wait for a pullback and stabilization before positioning at lower levels.

For beginners, try to avoid participating in stocks in a downtrend, as the operational difficulty is high and rebounds are hard to control.

As shown, once an upward trend is formed, it is difficult to change in the short term. Each pullback to support can be a friendly opportunity for beginners.

3. Use golden crosses/dead crosses to find buy and sell points

Golden cross: Refers to the point where the short-term moving average crosses above the long-term moving average. It indicates that there is a strong short-term bullish sentiment and a high desire to buy, pushing the average cost upwards.

As shown, the 5-day moving average crosses above the 20-day moving average, forming a golden cross, with volume gently increasing, and the stock price starts to rise, suitable for buying near the golden cross.

Dead cross: Refers to the short-term moving average crossing below the long-term moving average, forming a dead cross. It represents that there are many short-term bearish traders selling, pushing the stock price down, resulting in the short-term average cost being lower than the long-term average cost, which may lead to a downtrend or fluctuation.

When using golden crosses/dead crosses to find buy and sell points, you need to pay attention to the following points:

1. First choice is the golden cross of stocks that are generally on an upward trend, as the signal is more reliable.

2. Verify the effectiveness or ineffectiveness of golden crosses/dead crosses in conjunction with trading volume.

★ When volume gently increases, golden cross signals are more reliable, indicating real capital entering the market.

★ When volume continues to decrease, a golden cross may be a false breakout; be cautious of large players inducing buying before dumping.

★ When volume surges at high levels but the stock price does not rise, and a dead cross appears, the signal is more reliable, meaning capital fears heights and is escaping in large quantities.

★ When volume decreases and a dead cross appears, it may be a continuation of an upward trend, with major players inducing short selling to further lift the price.

III. Notes on Using Moving Averages

1. Moving averages have lagging characteristics and must be analyzed in conjunction with volume, price, KDJ, and other indicators.

2. Choose matching moving average periods according to your trading style.

3. Choose moving averages according to different market environments.

Clear one-sided trends: Preferably choose medium to long-term moving averages as a reference to avoid being disturbed by short-term signals.

Volatile market: Choose short-term moving averages as a reference, tighten take profit and stop loss, quick in and out, buy high and sell low.

4. The more moving averages, the better is not true; generally, 2-3 moving averages used together will suffice. Too many references can lead to mixed signals.

5. Try to participate only in stocks in an uptrend, avoiding downtrends, especially for beginners; working with the trend is a wise choice.

6. Trading discipline is greater than everything else; whether using a single moving average or a dual moving average combination strategy, stop loss should always be the first priority. This is the most crucial part of all trading systems. A trading system without stop loss is meaningless.

Written at the end

Trading is not better when it is more complex; on the contrary, the simpler it is, the longer it lasts.

Some have established complex trading systems, and referencing various indicators makes it difficult to achieve stable profits; others have achieved compounded earnings just relying on moving averages.

Its core is not in the system, but in the discipline.

No matter how good the system is, without trading discipline, everything is in vain.

Moving averages are not a winning magic weapon. Their core meaning lies in providing you with references, allowing you to see the major trends, and using support and resistance for dynamic position management, giving you a standard for executing discipline.

However, how to use it depends on the individual, on your emotions and psychology. - A sharing from an A9 brother!

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