Single moving average trading rules

Reviewing the basic theory of long and short strength

The practical application of a single moving average
The moving average indicator is a commonly used tool in technical analysis,
primarily for analyzing the price trends of stocks, commodities, indices, and
other financial markets. It generates a continuous line by calculating the
average value of prices over a specific time period. This tool helps us in
financial market analysis for trend identification, determining support and
resistance levels, providing crossover signals, and assessing market conditions
for being overbought or oversold. The rising or falling trend of a moving
average helps identify the overall direction of the market, and its role as
support or resistance indicates potential buying or selling pressure.

Furthermore, the crossover of short-term and long-term moving averages is

often considered a buy or sell signal. The relative position of prices to the
moving average provides crucial clues about market sentiment, aiding in
judging whether the market is experiencing overheating or overselling. In
summary, the moving average is a versatile and widely used technical analysis
tool applicable to various markets and investment strategies. In previous
studies, we explored simple trading methods using moving average buy and
sell signals. Here, we will focus on explaining the significance of moving
averages and the underlying value they hold.

Based on different calculation values, the periodicity of moving averages varies.

Generally, values below 10 are considered short-term behavior, suitable for
those interested in short-term trading. Values in the range of 20-60 are
considered medium-term, often used to judge the market's average behavior.
Values above 60 have a strong significance in assessing the overall market.
Common types of moving averages include Simple Moving Average (SMA),
Exponential Moving Average (EMA), and Weighted Moving Average (WMA).
Their differences lie in the allocation of weights. Let's delve into the basics of
moving average trading principles, focusing on the simple and
easy-to-understand moving average. I recommend using the parameters: 8; 21.
Moving average setting stage
Step 1: Click on the indicator option

Step 2: Enter MA in the search bar and select MA Cross.

We set the first moving average to ma8. In the current active market conditions
in India, it can effectively judge the short-term market sentiment. Follow my
method and set it first to open the MA and set the short period to MA8. Here
we use the moving average to conduct phased teaching, and everyone will
follow me.
After setting it up, please check the icon content to see if it is the same as me.
There is only one moving average in the chart. If so, it means the setting has
been completed.
Direction:
Now, let's look at the chart below. This is a randomly selected stock, TRENT.
Take a look at how the price performs in relation to the 8-day moving average:

When the MA8 is balanced, the market shows a range-bound or oscillating

structure. As the MA8 starts moving upward, the market is in a bullish trend,
and when the MA8 slopes downward, it indicates a bearish market condition.
Short-term moving averages can be a simple and effective tool to help us
assess the directional movement in the short-term market.
We are now switching to another stock, TATATECH. Take a moment to observe
the direction of the moving average. Is it moving downward? Yes. So, the
significance of short-term periods is to help us assess the short-term market
structure, whether it is in a bullish or bearish trend. Additionally, it can indicate
whether the market is experiencing overheated or oversold conditions.

Let's take a look at SJVN. In the first structure, the price closely follows the
moving average in an upward direction. As we know, the moving average
calculates the average price over a set period, indicating that in the first
structure, the chips enter the market steadily, showing a healthy upward
market behavior.
In the second structure, the price has reached 142.25, while the moving
average is at 104.41. This suggests that a large number of chips have entered
the market in the short term, indicating overheated market behavior. In this
analysis, my time frame is weekly (W), indicating a strong bullish move in the
market for the current week. If our analysis timeframe is daily (D), it represents
a day of strong market sentiment, and similarly, if it's monthly (M), it represents
an overheated market sentiment for the current month. It also reflects that a
significant portion of the chips is at or below 104.41, and current behavior
indicates that many low-priced chips have started to profit.

In this bullish sentiment, once weakness appears, it usually leads to a rapid

decline in prices due to profit-taking actions. Therefore, you can use this
method to assess whether your individual stocks are experiencing overheated
market sentiment in the short term. It's essential not to blindly follow the trend
when making buying decisions.
Let's discuss the application of a moving average in a bearish market, for
example, KSHITIJPOL. When we observe that the price is consistently below the
MA8 for an extended period, it signifies that there are many trapped chips
above the current price. In such market conditions, unless there is significant
positive news—such as the merger of a consistently loss-making company with
a leading domestic enterprise or a major breakthrough in research and
technology with expectations of sustained profitability in the future—a
V-shaped reversal structure is unlikely to occur. This is because there are too
many trapped chips above, and as soon as there is any upward movement in
the market, there are individuals looking to exit quickly with minimal losses.
So, at this point, everyone should understand that, as mentioned before,
before the moving average golden cross, the price needs to repeatedly move
above and below the moving average several times to form a consolidation
structure. Only later is there hope for a relatively good increase. Simply looking
at the chart is just one aspect; understanding the principles is what reveals that
prices are undergoing repeated scrutiny. During this process, there are
attempts to change the structure repeatedly. For example, some may feel that
the current chip level is low and want to buy, while others may think that the
market is not volatile and want to exit quickly to more active stocks. In this
process of scrutiny, technical structures change, and the loosening of trapped
chips that have already occurred can be revealed. All these aspects are
manifested through the relationship between the moving average and the
price. For example, in the case of KSHITIJPOL, it is currently in the process of
scrutiny, with the moving average moving sideways and the price showing a
consolidating structure. Therefore, in the future, it may emerge in a new
direction.

Okay, having said that much, let’s talk about the basic theory now about
everyone’s favorite method of buying and selling points:
Taking TRENT as an example, open the chart for the corresponding time. We
choose to buy when the price is above the 8-day moving average, and we sell
the next day when the daily closing price falls below MA8. Since breaking
through MA8 on October 27, 2023, the price has been rising all the way from
around 2060 to 2883 points as of now. The price has never closed below MA8
on the daily chart, and it has been held continuously. Moreover, MA8 has
played a relatively stable supporting role for the price.

Let's take another example, BAJAJHLDNG. Buy when the price is above MA8
and exit when it falls below MA8. You are not significantly affected by larger
downward retracements, as you focus on fully capturing the main upward
trend.
Let's consider another example: JINDALSTEL. Buy when the price stabilizes
above the MA8 and hold as long as it doesn't break below. This short-term
technique is well-suited for the current overheated sentiment in the Indian
market. When the price holds above the moving average, it indicates a rising
short-term enthusiasm among investors.

Selling Timing
When the candlestick completely falls below the 5-day moving average,
choose to sell off completely. As shown in the chart
JSWSTEEL closed at 816 on September 12th. At this point, according to the
moving average indicator, the position has been closed and sold off. The
market did indeed experience a wave of oscillating downward trends, and
there was no occurrence of both the candlestick chart and the volume bar
being higher than the 5-day moving average simultaneously. The stock had a
significant drop in closing price on July 17th, closing at 9.32 INR. Following this
system, each contract could avoid losses of nearly 170 INR.
The next one is to use this other method for short-term operations, which can
avoid a lot of troubles.

Advanced chapter

Then open VOL, set the period to MA5, and change the previous MA to 5. We
use the most basic relationship between volume and price here.

When to buy advanced stocks

When operating, only 5 days are set on the daily K chart, and only 5 days are
set on the energy column, and then every day, when the price and energy are
above the 5-day line, buy and hold.
We can see that in AXISBANK, when the price and volume rise together, the
price trend is strong. On the other hand, when the trading volume weakens,
the price falls below the moving average. In a situation where both volume and
price rise, this is the simplest and most effective way to judge. However, stocks
with such patterns are relatively rare. When you discover them, you can strictly
follow the rules of short-term trading to execute.
Let's take a look at TATA STEEL. When both the price and trading volume are
above the moving average, the price trend is strong (labeled as A). On the
other hand, when the price is above the moving average but the trading
volume is below it, the trend starts to weaken (B). Comparatively, even though
the price at point C has been consistently above the moving average, the
overall structure is a small upward movement and not as strong as at point A.
The reason is that the trading volume at point C did not receive effective
support.
In addition, everyone should pay attention to the fact that although the
increase in volume and price is not accidental, you should still pay attention to
three aspects, which can make your trading points more accurate. Enter the
demonstration

In this situation, it is necessary to observe the pattern. If the moving average

and the closing price of the candlestick are significantly apart, it may be
advisable to reduce or even liquidate the position. This scenario typically
indicates that the stock price is at a high level, encountering resistance that
prevents further upward breakthrough. Selling or liquidating positions would
be the correct choice in this case. Conversely, if the candlesticks are closely
aligned with the previous five days, it might be appropriate to consider
increasing positions.
Simultaneously, when using this method, it's essential to observe BIAS. BIAS is
an indicator that reflects the percentage difference between the market index
or closing price and a certain moving average, indicating the deviation of
prices from the MA over a specific period. If you are using the 5-day moving
average method, and the convergence rate reaches 20, caution is advised. This
suggests that the stock price has been resilient during this period but is
displaying some signs of irrational exuberance. At this point, it's prudent to
operate with caution, either reducing positions or liquidating them.

OK, let’s summarize the principles of moving average operations:

1. Prioritize short-term operations, and if holding for the medium term, adhere
to the principle of holding above the moving average (either 5-day or 8-day); if
it falls below the moving average, it is not viewed favorably.
2. Long positions are taken when the price is above the moving average, and
positions are strictly avoided when below the moving average.
3. Sell stocks if they haven't made a profit when rising, and sell when the price
falls to the cost price, ensuring capital safety and flexibility. Avoid turning
short-term positions into long-term ones.
4. Stocks bought above the moving average should also be sold above the
moving average to ensure profits. Even small profits, when compounded over
the long term, are objective. Don't wait until it falls below the moving average
to sell.
I won’t tell you about the support and resistance of the moving average here.
The discussion group has said it a lot before, and the method is relatively
simple. You can make more observations by comparing the moving average
and the price, and I will give you a practical extension of the technique.

Moving average escape top rule

1. Stock prices continue to rise
2. The stock price falls below the moving average
3. The moving average drops rapidly and attacks the high level and turns
downward.
4. The greater the slope/angle, the greater the room for decline, and you must
leave the market decisively.

Moving average bottom buying method

1. The stock price stabilizes on the moving average
2. The moving average of the attack line turns upward rapidly.
3. The greater the slope/angle, the greater the upside potential, so buy firmly.