The cornerstone of technical analysis: mastering the correct use of weekly, monthly, and quarterly charts

Starting with Moving Averages to Understand Time Cycle Analysis

When predicting stock trends, relying solely on fundamental analysis (such as revenue growth and profitability) is often insufficient. Investors need to incorporate technical tools to accurately identify entry and exit points. Among various technical indicators, weekly, monthly, and seasonal lines, reflecting market equilibrium costs over different time cycles, have become decision-making references for many professional traders. This article will delve into the essence, usage methods, and how to integrate these indicators to optimize your investment decisions.

The core logic of moving averages is quite straightforward: it calculates the average cost of investors who bought in over the past N trading days by averaging the closing prices. For example, to calculate the 5-day moving average, the formula is:

(Closing price on Day 5 + Day 4 + Day 3 + Day 2 + Day 1) ÷ 5

Taking NVDA on March 26, 2024, as an example, the 5-day moving average is calculated by summing the closing prices from March 20 to March 26 and dividing by 5. As new trading days arrive, these values are continuously updated, forming a continuous curve on the candlestick chart.

How Many Days Is the Seasonal Line? Classification and Application Differences of Different Cycle Lines

The commonly used average line cycles in the market are six types: 5-day, 10-day, 20-day, 60-day, 120-day, and 240-day. Based on the pattern that there are approximately 240 trading days in a year, about 60 trading days in a quarter, 20 trading days in a month, and about 10 trading days in two weeks, these cycles can be classified by time span:

The answer to “How many days is the seasonal line?” is 60 trading days, representing the concentrated cost zone for investors who bought the stock within about three months. Short-term traders tend to observe the interaction between the 5-day and 10-day moving averages, while medium and long-term investors pay more attention to the operation of cycles longer than 20 days.

Judging Strength or Weakness Through Price and Moving Average Positions

When the stock price candlestick is above all moving averages, it indicates that investors who bought in short-term, medium-term, or long-term are all in profit. For example, on March 4, NVDA’s trading price was above the 5-day, 10-day, 20-day, and 60-day moving averages all day, reflecting strong buying power in the market, and new investors entering are relatively safe.

Conversely, if the candlestick remains below all moving averages for a long time, it indicates that most investors are in a loss. As the stock price continues to decline, these losing holders face increasing stop-loss pressure, which can easily trigger chain selling.

Golden Cross and Death Cross: Key Signals for Trend Reversal

Golden Cross occurs when a short-term moving average crosses above a long-term moving average. A typical example is NVDA’s 5-day line crossing above the 20-day line, indicating that short-term buying momentum surpasses the medium-term equilibrium, and the market is shifting from balance to upward movement, signaling active accumulation.

Death Cross is the opposite. When a short-term moving average crosses below a long-term moving average (e.g., 5-day line crossing below the 20-day line), it suggests that short-term selling pressure is overcoming long-term support, and the trend is turning downward, prompting consideration of exiting.

Market States Indicated by Moving Average Arrangements

Different arrangements of cycle lines can intuitively reflect the market’s bullish or bearish stance:

Bullish Arrangement

All moving averages are sloping upward, arranged from top to bottom as short-term → medium-term → long-term. This pattern indicates the stock has passed the correction phase and entered an upward trend, making it an ideal time to build positions.

Bearish Arrangement

All moving averages slope downward, with the order reversed as long-term → medium-term → short-term. When this pattern appears, the stock price is usually in a sustained decline, with a higher probability of further bottoming than rebounding. Investors should stay cautious or consider reducing holdings.

Sideways Consolidation

Moving averages run parallel and horizontally, indicating the market’s bullish and bearish forces are in stalemate. At this point, there is no clear direction, and investors should wait cautiously for new catalysts.

Choppy Consolidation

Moving averages intertwine and cross each other, reflecting ongoing tug-of-war between bulls and bears. The market awaits significant news or data to break the deadlock and determine the next direction.

Three Major Risks to Beware When Using Moving Averages

Lagging Response Leading to Timing Deviations

Moving averages are based on past data, so when trends change rapidly, they inevitably lag. Investors may miss the first opportunity to catch the turning point, resulting in lost optimal entry or exit opportunities.

False Signals from Short-term Fluctuations

If the stock price experiences sharp short-term volatility due to unexpected events, moving averages may give signals contrary to the actual trend. During major data releases or black swan events, investors should reduce reliance on these indicators.

Conflicts Between Different Cycle Lines

Sometimes, short-term and long-term moving averages may send conflicting signals. Investors need to judge which signal has higher priority, but this judgment itself carries subjective risk.

Building a Complete Decision-Making System

Effectively utilizing monthly, seasonal, and other technical indicators requires viewing individual lines not in isolation but as part of a comprehensive signal analysis. Combining golden crosses, death crosses, and moving average arrangements allows investors to construct a more complete decision framework. At the same time, it is essential to recognize the limitations of these tools; they should never be relied upon solely. Instead, they must be integrated with fundamental analysis and risk management principles to maintain steady execution in an unpredictable market.