Buy rule analysis
Rule (1): When the moving average turns upward and the price breaks above the moving average, buy.
Principle: The moving average is a commonly used technical analysis tool that smooths price data, helping investors observe market trends more clearly. When the moving average shifts from a downward to an upward trend, it indicates that the short-term cost in the market starts to exceed the long-term cost, which might signal a shift from a bearish to a bullish market. Additionally, when the price breaks above the moving average, it means the current price has surpassed the average price level over a certain period, further confirming the formation of an upward trend. For example, in the Bitcoin price chart, if the 30-day moving average shifts from downward to upward, and the Bitcoin price breaks above the 30-day moving average, it acts like a 'buy' signal from the market, suggesting that market momentum is shifting upward.
Note: While this is a relatively positive signal, investors still need to consider other factors, such as the overall market atmosphere and trading volume. If the breakout occurs with low trading volume, it may be a false breakout, and the price could quickly retreat. Moreover, different cryptocurrencies may react differently to such signals, requiring an analysis that considers the specific characteristics of each currency.
Rule (2): When the price briefly drops below an upward moving average and then rebounds, add to your position.
Principle: When the price temporarily falls below an upward moving average and then rebounds, it can be seen as a confirmation of the upward trend. In an upward trend, the market may occasionally experience short-term pullbacks, which are normal price fluctuations. If the price can quickly return above the moving average, it indicates that the upward trend remains strong, and this pullback actually provides an opportunity to increase positions. For example, if the price of Ethereum briefly drops below the 10-day moving average during an upward trend but quickly returns above it, it may indicate that the market is merely undergoing a brief adjustment before continuing to rise.
Note: Determining whether the price has 'briefly dropped' requires consideration of both time and amplitude. If the drop lasts too long or is too deep, it may not simply be a pullback but a trend reversal. Investors can analyze historical price movements and use other technical indicators, such as Bollinger Bands, to determine a reasonable range for the duration and amplitude of the drop.
Rule (3): When the price rebounds without dropping below the moving average while the moving average is rising, buy.
Principle: If the price starts to rebound when it approaches the moving average, and the moving average itself is also rising, it indicates that market support is strong. The price rebounding before touching the moving average suggests that bullish forces in the market begin to exert influence as the price nears the average cost, preventing further declines. Additionally, the rising moving average indicates that the overall market trend is upward. Taking Litecoin as an example, if its price begins to rebound when approaching the 20-day moving average, and the 20-day moving average is trending upward, this is a positive signal indicating strong buying support in the market, and buying at this time may benefit from continued market growth.
Note: In this case, it is also important to pay attention to changes in trading volume. If the volume does not significantly increase during the rebound, it may indicate insufficient upward momentum. Furthermore, attention should be given to the macroeconomic environment and news factors since external factors may affect the effectiveness of such technical signals.
Rule (4): When the price moves far away from a declining moving average, a rebound may occur, consider short-term buying.
Principle: When the price is far from the moving average during a downtrend, a situation of oversold rebound may arise. This is due to the price dropping too quickly, deviating from the market's average cost; from a technical analysis perspective, the market may undergo some degree of self-correction. For instance, when the price of Ripple falls sharply and moves away from its 5-day moving average, the significant short-term drop could attract some bottom-fishing capital, pushing the price to rebound. This rebound is usually short-lived, making it suitable for short-term buying.
Note: This is a relatively short-term trading strategy. Investors should set strict stop-loss levels when engaging in short-term buying, as it is difficult to accurately predict the magnitude and duration of a rebound. Additionally, if the market is in an extreme bearish environment, the price may continue to deviate from the moving average without rebounding.
Sell rule analysis
Rule (5): When the moving average turns downward and the price falls below the moving average, sell.
Principle: When the moving average shifts from an upward to a downward trend, it indicates that the short-term cost in the market starts to fall below the long-term cost, which might signal a shift from a bullish to a bearish market. If the price falls below the moving average, it further confirms the formation of a downward trend. For example, for Bitcoin Cash, if the 60-day moving average shifts from upward to downward, and the price breaks below the 60-day moving average, it acts like a 'sell' signal from the market, suggesting that market momentum is shifting downward.
Note: Investors should also consider the overall market situation when selling. Sometimes, the market may experience temporary fluctuations that lead to a shift in the moving average and price drops, but then it resumes rising. Thus, it is necessary to combine other technical indicators, such as MACD (Moving Average Convergence Divergence), to further confirm the reversal of the trend.
Rule (6): When a price rebound does not last and falls below the declining moving average, sell.
Principle: In a downward trend, the price may experience some rebounds, but if these rebounds do not persist and the price falls back below the declining moving average, it indicates that the bearish forces in the market still dominate. For example, if Dash experiences a rebound during a downward trend but the rebound is limited and quickly returns below the declining 30-day moving average, it suggests that the previous rebound was merely a brief pause in the downtrend, and the market will continue to decline.
Note: Determining whether a rebound is 'sustained' requires a comprehensive assessment of time and price amplitude. Generally speaking, if a rebound lasts a short time and does not break through significant resistance levels, it is likely a weak rebound. Investors can also observe the changes in trading volume during the rebound; if the volume is low, it indicates insufficient upward momentum.
Rule (7): When the price attempts to rebound but fails to break above the moving average and falls back down, sell.
Principle: When the price attempts to rise but fails to break above the moving average and then falls back, it shows that the bullish forces in the market are weak and unable to push the price above the average cost. For instance, if Monero's price tries to rebound after a decline but cannot continue to rise near the 15-day moving average, and then starts to fall back, it indicates that the selling pressure in the market is heavy and upward resistance is significant. Selling at this point can help avoid further losses.
Note: In this case, pay attention to the slope of the moving average. If the slope of the moving average is steep, it indicates a strong downward trend, making it more difficult for the price to break above the moving average. At the same time, be aware of market sentiment and news factors, as these can influence whether the price can break above the moving average.
Rule (8): When the price rapidly rises and moves far from the upward moving average, the risk is high; consider selling.
Principle: When the price rises quickly and moves away from the upward moving average, it may indicate an overbought situation. This means the price is rising too rapidly and has deviated from the market's average cost, potentially facing a risk of correction. For example, if Dogecoin's price rises significantly in a short time and moves far from its 20-day moving average, it may be due to excessive optimism in market sentiment. At this point, profit-taking may flood the market, causing the price to decline, so consider selling to lock in profits or reduce risks.
Note: Determining whether the price is experiencing a 'rapid rise away from' the moving average can be assessed by calculating the degree of deviation from the average. While this situation carries high risk, it does not necessarily mean one must sell everything immediately. Investors can sell partially or set profit-taking levels according to their risk preferences and investment strategies to address potential price corrections.
------------I--------- am------- the------- dividing------- line------------Disclaimer:The content published in this article is intended to share information and disseminate knowledge, and is not intended to provide any specific investment advice.Before making any investment decisions, we strongly recommend that you conduct independent research and analysis and make informed decisions based on your personal financial situation, investment goals, and risk tolerance.
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