Reward 500 Tiger-coinsHi, here is Part 2 of MA, focusing on the specific actionable principles (Granville) and the high-probability setups that occur when you combine Moving Averages with Candlestick analysis.
The upcoming TA content will be published on this account.
Part 2: The 8 Golden Rules & Candlestick Fusion
While Part 1 establishes the logic of the Moving Average (MA), Part 2 focuses on execution. This section details the classic Granville’s 8 Rules for identifying buy/sell signals and explains how to sharpen those signals using specific Candlestick Patterns.
Eight MA Trading Principles
1. Breakout Buy: Confirmed Uptrend Signal
The Pattern: This signals a trend reversal. It occurs when the price decisively breaks upward through a Moving Average that has stopped declining, flattened, and begun a slight upward turn.
Market Implication: It confirms that the "average holding cost" is rising and fresh capital is supporting the market, marking the start of a potential uptrend.
Mechanism: The MA typically acts as resistance due to profit-taking from bottom-fishers. A successful breakout proves that strong capital inflows have absorbed this selling pressure, clearing the path for higher prices.
2. Breakdown Sell: A Potential Warning of Market Weakness
The Pattern: This signals a major trend reversal to the downside. It occurs when the price decisively breaks downward through a Moving Average that has stopped rising, flattened, and begun a slight downward turn.
Market Implication: It confirms that the "average holding cost" is falling and capital is exiting the market. This structural damage suggests the end of the previous uptrend and the start of a potential bear market.
Mechanism: The MA previously acted as a support level where buyers were profitable. A breakdown signifies that selling pressure has overwhelmed demand. Recent buyers are now trapped in losses, triggering stop-loss orders and panic selling that accelerates the price decline.
3. Pullback Holding Support: Capturing Continuation Opportunities in Uptrends
The Pattern: This occurs within an established uptrend where the Moving Average is clearly rising. The price retraces (pulls back) toward the MA line but does not break decisively below it. Instead, it finds support at or near the line and resumes its upward path.
Market Implication: This confirms the uptrend's structural health. It indicates that despite temporary profit-taking, underlying demand remains robust, offering a high-probability entry point for trend continuation.
Mechanism: As the price drops toward the "average cost" level, institutional and value-oriented traders view the decline as a discount rather than a reversal. New buyers step in, and existing holders refuse to sell, creating a "floor" of demand that propels the price back up.
4. Failed Rally: Defensive Retreat Under Bearish Pressure
The Pattern: This occurs within an established downtrend where the Moving Average is clearly falling. The price rallies (rebounds) toward the MA line but fails to break above it. Instead, it meets resistance at the line and reverses downward again.
Market Implication: This confirms the downtrend's dominance. It signals that bullish sentiment is too weak to overcome the structural resistance and that the market views any price recovery merely as a liquidity event to exit positions.
Mechanism: As the price rises back to the "average cost" level, traders holding losing positions seize the chance to exit near "break-even," flooding the market with supply. Simultaneously, bears initiate fresh short positions at this resistance level, overwhelming the weak buying interest.
Does price action suggest a confirmed breakout or a failed rally?
When price hits a key moving average, do you add with the trend or wait for confirmation? Which works better for you?
If technical signals conflict with fundamentals or news, which do you trust more — and why?
Leave a comment to earn 10 Tiger Coins, and you’ll also have a chance to win a $5 stock voucher each week!
For the past lessons, you can click to read:
TA Education 1｜Understand Market Signals! How to Spot $MSFT & $TSLA's Uptrend?
TA Education 2｜How to Spot 2 Common Bearish Patterns?
TA Education 3｜2 Common Bearish Patterns - How to Spot Misleading Signals?
TA Education 4｜How to apply MA indicators in live-trading?
TA Education 5｜6 Common MA Patterns — Which One Do You Find Most Useful?
Comments
The 1st approach is more aggressive approach & involves buying or selling immediately the moment the price touches the moving average & assuming the long term trend will continue.
The advantage is you get the best possible entry price if the trend is strong & immediate. However you risk catching a falling knife. This may lead to significant losses if the trend reverses.
The 2nd approach of waiting for confirmation is a more prudent approach. This strategy involves waiting for a signal. This could be a specific candlestick pattern or bounce in momentum indicators, before entering the trade.
This approach reduces the risk & filters out the fakeouts or trend reversals. However you may miss the initial part of the move or get a worse entry price.
I prefer waiting for confirmation as fakeouts and Bull traps are common. Patience pays off.
@Tiger_comments @TigerStars
This is due to :
Failed Momentum: Even though price action recently pushed above resistance levels, this upside move was not confirmed by supporting momentum indicators like RSI or MACD which signals a lack of conviction behind the move.
Low Volume on Breakout : Failed breakouts often occur on weak volume and a significant spike in volume on the reversal suggests a fakeout which can trap traders.
In summary the recent price action of SPY lacks the necessary confirmation such as volume and momentum required for a sustained genuine breakout. Instead it looks like a classic bull trap designed to lure in buyers before a potential reversal or correction.
@Tiger_comments @Tiger_SG @TigerClub @CaptainTiger
When price pulls back to a key MA in a clear trend, I usually add with the trend, but only after a confirming candlestick signal like a bullish engulfing or strong rejection. If price cuts through the MA with momentum, I wait — patience works better than averaging blindly.
When technicals clash with fundamentals or news, I tend to trust price action in the short to medium term. Fundamentals guide conviction, but entries and exits are driven by real capital flow. Ultimately, price action has the final say.
@Tiger_comments @TigerStars
The stock needs to be fundamentally sound first for me to consider it. So, if technical signals conflict with fundamentals or news, I would still go with fundamentals. Technicals is usually the result of the combined action of the various investors and can be irrational. News can be helpful in swinging stocks in either direction such as covid, trump’s liberation day, rate hikes and cuts are useful in creating volatility to help me add positions or take profits. @Kaixiang @SR050321 @DiAngel @LuckyPiggie @Wayneqq @SPOT_ON @HelenJanet @Universe宇宙 @Success88 @Fenger1188 come join