Daily, Monthly, Weekly Charts: Master these three lines to catch the turning points of the market.

When analyzing stocks, many people start placing orders just by looking at K-line charts, often resulting in frequent losses. The real difference lies in not utilizing medium- and long-term indicators like the monthly and quarterly moving averages effectively. These indicators help you see clearly where the average investor’s cost basis is over a certain period, enabling you to judge whether the stock price is going up or down.

How are the Monthly, Quarterly, and Weekly Moving Averages Calculated?

Simply put, these indicators are calculated as average prices over different time cycles.

For example, take NVIDIA (NVDA) recent trading data. If you want to see the 5-day moving average, you add up the closing prices of the most recent 5 trading days and divide by 5. For instance:

• Closing price on March 26, 2024: 925.61 yuan
• Closing price on March 25, 2024: 950.02 yuan
• Closing price on March 22, 2024: 942.89 yuan
• Closing price on March 21, 2024: 914.35 yuan
• Closing price on March 20, 2024: 903.72 yuan

The average of these five prices is 927.318 yuan.

Similarly, the averages for different periods correspond to:

The core logic is: by plotting these averages on the K-line chart, you can see the average purchase cost of investors over a period. When the stock price is above the moving average, it indicates holders are making money; below the average, they are losing money.

How to Read the Three Lines? Understanding Bullish and Bearish Signals with K-line Charts

In practice, these averages should be used in conjunction with the K-line chart. For example, on March 4, NVIDIA’s price was above the 5-day, 10-day, 20-day, and 60-day moving averages all day.

What does this imply?

• Investors who bought in the past week are making money
• Investors who bought in the past two weeks are making money
• Investors who bought in the past month are making money
• Investors who bought in the past quarter are also making money

In this situation, new purchases are relatively safer because most participants are in profit, forming a strong consensus of holding.

Conversely, if the stock price remains below the averages, it indicates that buyers across all periods are in loss. If the price continues to fall, those in loss will rush to sell, potentially causing a panic sell-off.

Golden Cross and Death Cross: The Boundary of Buy and Sell Signals

When it comes to timing entries and exits, we must mention the Golden Cross and Death Cross.

Golden Cross: When a short-term moving average (like the 5-day) crosses upward through a longer-term average (like the 20-day), it indicates that short-term buyers are gaining strength, and the market’s average cost basis is rising. This usually signals the start of an upward trend and is a buy signal.

Death Cross: When a short-term average crosses downward through a longer-term average, it suggests short-term sellers are gaining control, many investors are in loss, and a selling wave may be triggered. At this point, consider reducing positions or waiting.

What Do Different Arrangement Patterns Reveal About the Market?

The arrangement of multiple moving averages can reveal the market’s bullish or bearish trend:

Bullish Arrangement
All lines are sloping upward, arranged from short to long in order (shorter above longer). This indicates that investors across all periods are profitable, market confidence is high, and it often precedes an upward move.

Bearish Arrangement
All lines are sloping downward, with the longest period at the top and shorter ones below. This suggests only short-term traders are not yet heavily in loss, while medium- and long-term investors are losing, indicating pessimism and a potential continued decline.

Sideways Consolidation
All averages run flat and parallel, showing a balance of buying and selling forces with no clear direction. Caution is advised, waiting for a breakout signal.

Entangled Crossovers
Moving averages repeatedly cross and intertwine, indicating tug-of-war between bulls and bears. The market awaits new positive or negative catalysts to determine direction.

Why Are Monthly and Quarterly Moving Averages Not Omnipotent?

While these indicators are useful, they have obvious limitations that investors should be aware of.

Lagging Nature: Moving averages are based on past prices and tend to react late to trend changes. Sometimes, the price has already reversed, but the averages haven’t caught up, causing you to miss the optimal entry point.

Confusion from Short-term Volatility: Sudden major news (such as policy announcements or earnings surprises) can cause sharp price swings. During such times, moving averages may give false signals. You might see a golden cross, but it could just be a short-term emotional fluctuation or false breakout.

Therefore, exercise extra caution when major data releases are imminent.

How to Use Monthly and Quarterly Moving Averages to Optimize Your Trading Strategy?

Step 1: Define Your Trading Cycle
Short-term? Use 5-day and 10-day averages.
Mid-term? Focus on 20-day and 60-day averages.
Long-term? 120-day and 240-day averages are your references.

Step 2: Observe the Arrangement of Multiple Lines
Don’t rely on just one line. When a bullish arrangement appears, consider actively building positions; when bearish, reduce or wait.

Step 3: Wait for Confirmation from Golden Cross or Death Cross
A mere arrangement pattern isn’t enough; look for the short-term crossing above or below the long-term average for clear entry or exit signals.

Step 4: Combine with Fundamental Analysis
Technical indicators are only references. If a company’s fundamentals are deteriorating, even the most beautiful monthly or quarterly arrangements warrant caution.

Step 5: Set Stop-Loss Points
Even if your analysis points to the right direction, always set stop-loss levels to limit potential losses, as no indicator is 100% accurate.

In summary, monthly and quarterly moving averages are excellent tools for understanding market sentiment. When combined with golden crosses, arrangement patterns, and fundamental analysis, they can significantly improve your chances of bottom-fishing or topping out. But don’t expect them to be magic; markets are always more complex than charts, and risk management is key to long-term survival.