Application of Moving Average Array - Short Pattern

What is a short-moving average array?

A short moving average array includes the Candlestick charts, as well as the short-term, medium-term, and long-term moving averages, that are ordered from top to bottom and all point downward. For example, if you find the Candlestick charts, the MA5, the MA30, the MA60, and the MA120 are aligned from top to bottom and heading downward in the daily Candlestick chart, you can determine those lines are arranged in a short pattern form.

When a long moving average array appears, it means all positions are losing in every period of the moving average, and the market is in a bearish trend.

Identity short moving average array

1. It appears in a down-trending market;
2. Candlestick charts and moving averages of short-term, medium-term, and long-term are arranged from top to bottom and point downward. In most cases, all the moving averages, irrespective of the period, are moving in the path of a downward arc.

The indications of short moving average array

The short-moving average array’s implication:

the emergence of this pattern is frequently followed by a negative market, so it is a signal for traders to go short. The process is as follows: the price rises for a period and then falls to form the short-moving average array. The bear market will shortly follow, and the market will plunge significantly. Investors should take immediate action to close down positions if they see the short-moving average array.

Usage

Short moving average array

Above is the Gate BTC futures’s daily trend chart. It shows the market is experiencing a long-term declining trend, in which MA5, MA30, MA60, MA120, and MA180 are arranged from bottom to top and point downward. During this more than 12-month bearish trend, BTC went from $69,000 to about $16,000, a decline of more than 70%, inflicting a heavy blow to the entire encryption market.

Issues of attention

1. Investors should go short when they see the short-moving average array, but they do not have to wait until the pattern is fully formed. It is worth noting that the criteria for deciding when to short differ from those for deciding when too long. Before opening positions, investors must wait for all required conditions to be met while shorting positions should be done decisively after a sign of fall shows.
2. If you start shorting positions after the short-moving average array has already formed, it will be a little late. Instead, you should think about selling and getting out at the first sign of a declining trend, such as K-line peaking signals, currency breaking the downward trend line, technical patterns that turn around at the top, and the formation moving average dead fork. The general principle is to “be cautious when opening positions and decisive when closing them.”

Summary

The moving average performs best when combined with other technical tools because it has the drawback of a delayed reaction to market movement. Users can choose when to open positions by studying the Candlestick charts, trend line, or technical indicators, and they can then closely monitor the movement of the moving average to choose the optimal trading time.

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Disclaimer

This article is for informational purposes only and does not constitute any investment advice, nor is Gate responsible for any of your investments. Content related to technical analysis, market judgment, trading skills, and traders’ sharing cannot be used on an investment basis. Investment may involve potential risks and face uncertainties. This article does not contain or imply any guarantee for returns on any type of investment.