Today's article will not be too long; it is about the moving average system.
It may be somewhat difficult to understand because there will not be too much emphasis on looking at the charts.
Many people do not understand, thinking that technical indicators should be based on the charts, but why do they rarely see me drawing charts?
Because the technical chart itself is an outcome indicator, the charts you see are all based on the technical establishment, and those charts that are not technically established are hidden.
This is why many retail investors use moving averages to make predictions, but the results are always inaccurate in determining the trend of the market.
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Because you do not understand the essence behind the technology, you also do not understand how to use the moving averages.
And the addition and reduction of positions guided by moving averages is essentially the relationship between capital costs and moving averages, and it is also the big logic of capital under the moving average system.
In the stock market, what do we emphasize the most?
The relationship between volume and price.The article to be translated into English is: What is the relationship between the current price and trading volume?
Trading volume represents capital, while the price represents the profit situation of the capital.
The moving average itself refers to the average price within a certain period.
Consider a question: Under normal circumstances, when would capital reduce its position?
The answer is actually very clear, which is when there is a significant profit.
Unless there are special circumstances, the capital changes its judgment on the upward trend of the stock, thinking it will plummet, it may reduce its position to wait and see.
In most cases, capital will reduce its position according to its own operation rules when the profit is very sufficient.
For example, the capital cost is only 10 yuan, but the stock price has already risen to 12 yuan, 13 yuan, 15 yuan, or even higher.
The capital that can operate the market often has a large level and volume, and they must use position control to profit in batches.
That is to say, capital will never buy in concentration at 10 yuan and sell in concentration at 20 yuan.
Here is the translation:
What is the relationship between the current price and trading volume?
Trading volume represents capital, and the price represents the capital's profit situation.
The moving average itself refers to the average price within a certain period.
Consider a question: Under normal circumstances, when would capital reduce its position?
The answer is actually quite clear—it is when there is a significant profit.
Unless there are special circumstances where capital changes its judgment on the stock's upward trend, believing it will plummet, it may reduce its position to watch and wait.
In the vast majority of cases, capital will reduce its position according to its own operational patterns when the profit is very substantial.
For example, if the capital cost is only 10 units of currency, but the stock price has already risen to 12, 13, 15, or even higher.
Capital that can manipulate the market often has a large scale and volume; they must use position control to take profits in batches.
In other words, capital can never buy in concentration at 10 units of currency and sell in concentration at 20 units of currency.The market cannot handle such large capital inflows and outflows; it requires time to digest.
Therefore, during the operation of large funds, when the profits are good, they will definitely cash in their chips in advance and then enter the next so-called wave band.
In the short term, the capital measures whether it should reduce positions, mainly by looking at the moving average deviation.
Moving average deviation refers to the deviation of the volume-price relationship within the moving average period.
The moving average refers to the average closing price, which can be understood as the average capital cost within the period.
The difference between the moving average price and the current price is the capital return rate of the current period.
For example, the 20-day moving average price is 10 yuan, but the stock price is 13 yuan, which means that in the recent 20 trading days, that is, a month's time, the average profit of the capital has reached 30%.
For large capital, if there is a 10% over-increase profit in the short period (5 days), it will reduce positions; if there is more than 20% profit in the medium period (20 days), it will reduce positions; if there is more than 30% profit in the long period (60 days), it will reduce positions.
The main target of the main force is indeed to double, or even triple.
However, the law of the main force operating stocks is not to sell out after the big rise ends.During the upward trend, the main force will continuously reduce and increase positions, that is, to make the difference.
On the one hand, it is to continuously control the cost to ensure that its own capital cost is relatively low and not easy to be trapped.
Because the market may suddenly have some situations, and the main force may not be able to completely control the plate, going against the trend.
On the other hand, the main force uses high selling and low buying to effectively increase the average cost of retail investors.
The less the average profit of retail investors, the smaller the selling pressure, and the greater the space for the main force's capital operation.
Therefore, every time there is an over-increase, the main force will reduce positions, which is an inevitable law.
The high selling and low buying of the main force's capital has a very standard.
The funds that follow the trend into the market are less than the funds to be sold in the market, and the main force will reduce positions.
Because in the case of increased selling pressure, the gap in buying and selling transactions, theoretically, should be filled by the main force itself.
The main force is very unwilling to invest real gold and silver at high positions, it is better to take a step ahead and make a short-term reduction in positions.But there is one point that is exactly the opposite: the main force does not necessarily replenish positions when the stock is oversold.
Although we often see that when the stock price is short-term oversold, there will be a rebound.
Many people think that the main force goes to the bottom fishing, and then the stock price rebounds, but in fact, it is not the case.
The goal of the main force is to leave the market, and the so-called bottom fishing does not exist.
That is the natural reaction formed by the market being oversold, which is why many stocks have a period of consolidation after a rebound from being oversold, and then continue to fall.
That is because the main force has not entered the market at all, it is just the market funds that go to grab the rebound, and no one is willing to lift, so it is flat.
After a period of consolidation, it is inevitable to continue to fall further.
The judgment of the moving average system should first be based on whether the main force is there or not, and the first principle of the moving average theory is not to easily "bottom fish" on the way down.
So how does the main force use the moving average system to add positions?This issue is actually quite easy to understand.
The main force adds positions, which means it wants chips, and the premise of wanting chips is that it doesn't want them at the moment, and the chips are taken away by retail investors.
When the stock price is at a relatively low level, the main force wants chips, and it will choose to add positions.
There are only two situations for adding positions.
The first type is the addition of positions in the bottom area before the market starts.
Before the market starts, adding positions in the bottom area is mainly due to cheap chips.
At this stage, the value of the moving average itself for adding positions in this system is actually very low.
Because at this stage, the main force of funds wants to enter stealthily, rather than openly.
So, when the moving average is not very good, the main force will add positions instead.
Reflected in the results, it is that the stock price does not fall much, but the moving average is very messy, and even in a bear market.The bottom is rarely achieved in one go; most of the time, it is ground out.
The main force often builds positions below the moving average, and the biggest signal on the chart is that it looks very bad, but it can't fall further.
The second type is when the market is in an uptrend, and the increase in positions during the retrace.
In an uptrend, the obvious signal of the main force's increase in positions often appears during the retrace to the moving average.
When retracing to the moving average, it is a time when many retail investors start to hesitate, and the battle between bulls and bears takes place.
At this time, the effect of the washout has been achieved, and the retail investors who want to get on board are also ready to take action.
At this critical juncture close to the market turning point, the main force's capital directly sweeps into the market, on the one hand, it can obtain the washed-out chips.
On the other hand, it can boost market confidence, rekindle the retail investors' bullish sentiment, and clear the way for the subsequent rise.
Therefore, many stocks will show a strong rise near the moving average in an upward trend.
We are accustomed to calling this technical pattern a retrace, which is actually a game under the control of the main force, or a one-sided massacre.The process of increasing position in a moving average system is actually more challenging than reducing position.
The reason is that when the price is close to the moving average, it is difficult to predict in advance whether the main force will break through and run away, or whether it will complete the washing and enter the market to grab the shares.
The moving average system is the simplest and also the most complex system in the stock market.
Behind the moving average lies the price.
If combined with volume, a clear trend direction can be judged.
For retail investors, the smoothing function of the moving average is more friendly than the candlestick chart, and the probability of being deceived is lower.
Therefore, many investors master the rules of various cycles, and what they refer to is the moving average system.
Forget about the candlestick chart and look at the moving average alone, and you will find a different stock trend world, and you will understand the mystery of the moving average system.