Moving Average (MA): How to know when to buy/sell stocks?

Investing with moomoo joined discussion · Jul 7, 2021 11:18

Moving Average (MA): How to know when to buy/sell stocks?

1、 Introduction to MA (Moving Average)

Moving averages are calculated based on statistical algorithms. The average stock prices within a certain period are calculated and connected to form a line, which is the moving average.

2、Calculation Formula

Moving Average = the sum of closing prices during the sampling days / the number of sampling days

Example: MA5 is equal to the sum of 5 trading days' closing prices divided by 5.

3、Indication Application

3.1 What are the most commonly used parameters?

（1）The common periodic length for moving averages are 5, 10, 30, 60, 120, and 250 days.

（2）The 5-day and 10-day short-term moving averages are the reference indicators for short-term operations, called daily moving averages;

（3）The 30-day and 60-day indicators are medium-term moving average indicators, called quarterly moving average indicators;

（4）The 120-day and 250-day are long-term moving average indicators, called annual moving average indicators;

3.2 How MA triggers buy/sell signals?

Granville's 8 Principles for Moving Averages:
The relationship between the moving averages (MAs) and the price of the day is used as the basis for making trading decisions.

4 Buy Signals:

（1）The decline of a MA is gradually flattening, and when the stock price tops the MA from below, it is a buy signal.

（2）A short-term MA on a rising trend falls near or below a longer-term MA, and when the short-term MA tops the longer-term MA, it is a timing to buy.

（3）The stock price is moving above the MA, and the stock price suddenly drops but does not fall below the MA. When the stock price rises again, you can add to your positions.
Example:

（4）The stock price is moving below the MA and suddenly plummets to far below the MA. The deviation between the stock price and the MA is now too large. The stock price is likely to rebound towards the MA, so it is a buying signal.

4 Sell Signals:

（1）After an MA rises, it remains parallel or falls, and when a short-term MA falls below a longer-term MA, it is a signal to sell.

（2）The stock price tops the MA but immediately returns below the MA, and when the MA continues to fall, it is a sell signal.

（3）The stock price is lower than the MA and rises. But if the rise reverses below topping the MA, a sell signal presents itself.

（4）The stock price rises sharply in a short period of time and the deviation between the stock price and the MA becomes very large. It is very likely that the stock price will fall towards the MA, so it is an opportunity to sell.
Example:

Moving averages are backward-looking by nature, as they rely on past data that can never be applied to the future with complete confidence.
Technical indicators provide an important perspective in due diligence, but it's not always 100% accurate.

4、Operation Guidelines

4.1 Select Indicator

Path: Detailed Quotes of a Stock - Indicator Bar - Select MA