Moving Average MA Detailed Explanation

Moving average concept

The moving average MA is a trend indicator, also known as the

moving average or cost line, which represents the average cost of
buying stocks over a period of time and has a strong guiding role in
operation

The moving average analysis method was created by American

investment expert Granville. It is based on the "three trends theory" and
"average cost concept" of Dow's stock price analysis theory. It uses the
principle of "moving average" in statistics to connect the average stock
price over a period of time into a curve to show the historical fluctuations
of stock prices, and then reflect the future development trend of the
stock price index. It is a technical analysis method that visualizes the
Dow theory

The moving average is a curve formed by drawing the average value of

the stock index or stock price over a period of time on a coordinate
graph. It can be used to judge the future trend of the stock price

The moving average takes 5 days, 10 days, 30 days, 60 days, 120 days
and 250 days as indicator parameters

Among them, the short-term moving average of 5 days and 10 days is a

reference indicator for short-term speculation, called the daily moving
average indicator

The medium-term moving average indicators of 30 days and 60 days

are called quarterly moving average indicators

The long-term moving average indicators of 120 days and 250 days are
called annual moving average indicators
The role of the moving average MA:

(1) Tracking trends. Pay attention to the price trend and follow it without
giving up easily. If an upward or downward trend line can be found from
the stock price chart, then the MA curve will remain consistent with the
trend line direction, which can eliminate the fluctuations in the stock
price during this process

（2）Lag. When the original trend of the stock price reverses, due to the
MA's trend-tracking characteristics, the MA's action is often too slow,
and the reversal speed lags behind the general trend. This is a huge
weakness of the MA. When the MA generates a reversal signal, the
depth of the stock price reversal is already very large

(3) Stability. From the calculation method of MA, it is known that it is

difficult to change the value of MA significantly, whether it is upward or
downward. The stock price must change significantly on that day.
Because the change of MA is not a change of one day, but a change of
several days. If a large change of one day is spread over several days,
the change will become smaller and not obvious. This kind of stability
has advantages and disadvantages. You should pay more attention to it
when applying it and master the right degree

(4) The ability to boost or depress prices. When the stock price breaks
through the MA, whether it is an upward or downward breakthrough, the
stock price has the desire to continue moving in the direction of the
breakthrough. This is the ability of the MA to boost or depress prices

(5) Characteristics of support and pressure lines. Due to the above four
characteristics of MA, it plays the role of support and pressure line in the
stock price trend. The moving average's ability to boost and depress
prices is particularly evident after the stock price moves out of the
consolidation area. When the stock price breaks out of the consolidation
and rises, it will play a strong role in boosting prices. Even if it
occasionally falls back, it will move upward due to the support of the
moving average. On the contrary, when the stock price breaks out of the
consolidation area and falls, it will have a strong role in boosting prices.
Even if the stock price rebounds, it will be suppressed by the moving
average and hit a new low
Here are some of the most famous
moves on the moving average:
Introduction to Granville's eight
moving average rules
1. Buying time

① Buy 1: After the moving average has been declining, it

gradually becomes smooth and shows signs of rising. In addition,
the stock price line also turns to rise and breaks through the
moving average from below. This is the first buying signal

② Buy 2: The stock price line is still above the moving average at
the beginning, but it shows a sharp downward trend. After
breaking through the moving average, it suddenly turns upward
and breaks through the moving average from below. This is the
second buying signal

③ Buy 3: Similar to Buy 2, but the stock price line has not yet
fallen below the moving average. As long as the moving average is
still on an upward trend, the former will also turn from falling to
rising. This is the third buying signal

④ Buy 4: Both the stock price line and the moving average are
falling. The problem is that the stock price line has fallen sharply
and is far away from the moving average, indicating that a
rebound is just around the corner. This fourth buying signal is very
popular with many short-term traders (the so-called grabbing the
bottom), but be careful not to fight, because the general situation
is still not good, and a long battle will inevitably be trapped

2. Selling time

① Sell 1: The moving average turns from rising to flat and has a
downward trend, and the stock price line also falls from above it
and breaks through the moving average. This is the first sell signal

② Sell 2: The stock price line and the moving average both fall
disappointingly. At this time, the stock price line rises from the
bottom and breaks through the moving average that is still falling,
and then turns around and falls. This is the second sell signal

③ Sell 3: Similar to Sell 2, the problem is that the stock price line
that has rebounded slightly is weaker. It is unable to break
 through the moving average just when it wants to break through.
This is the third sell signal. It should be noted that Sell 3 is
different from Buy 1. Buy 1 is when the moving average falls and
flattens, and there are signs of rising, while Sell 3, the moving
average is still falling

④ Sell 4: The stock price has skyrocketed all the way, far
exceeding the moving average that is also rising at the same time.
After the surge, there must be a plunge, so this is the fourth sell
signal to prevent unnecessary losses caused by the plunge

After long-term application, we found that when the moving average

turns from a decline to a flat line and has an upward trend, the stock
price breaks through the moving average from below the moving
average and always remains roughly above the moving average, this
section is a bull market; on the contrary, when the moving average
turns from a rise to a flat line and then falls, the stock price line breaks
through the moving average from above the moving average to below
the moving average, this section is a bear market

In addition, in obvious upward and downward trends, there will be long and
short arrangements of moving averages respectively

Long arrangement of moving averages. When the stock index or stock price
rises, the moving average supports the K line to rise, that is, the K line is
above the left of the moving average. This phenomenon is called long
arrangement. When long arrangement occurs, it is the investor's holding
period
Moving average short arrangement, when the stock price or stock index falls,
the moving average naturally arranges from large to small, suppressing the
K line from the upper right to the lower right, this phenomenon is called
short arrangement. When the short arrangement occurs, it is the investor's
holding period

It is worth mentioning that the turning point of the moving average is very
important, which usually indicates a change in trend
When a moving average runs upward and cannot reach a new high, and
shows a peak shape, it is a sign that the stock price is unable to reach a new
high and may turn downward. This turning point is usually called a selling
point

During the decline, when the moving average runs downward, the curve
flattens and turns around, the trough appears, which is what people call the
buying point. Investors should follow the moving average to find the turning
point (peak and trough) in time to find the buying and selling points

The moving average is simple, practical, easy to master, and popular among
investors. But at the same time, it also has disadvantages. Mainly when the
stock index and stock price are in a narrow range or when the market maker
is shaking and washing the market, the short-term moving average will
have too many buy and sell signals, which are difficult to distinguish and can
easily cause misleading