Stock prices are largely divided into 6 phases depending on the arrangement order of long-term, medium-term, and short-term moving averages.
Phase 1 – Normal arrangement
Phase 2 – In phase 1, short-term breaks through medium-term decline
Phase 3 – In phase 2, short-term breaks through long-term decline
Phase 4 – In phase 3, medium-term breaks through long-term decline (reverse arrangement)
Phase 5 – In phase 4, short-term breaks through medium-term rise
Phase 6 – In phase 5, short-term breaks through long-term rise
Phase 1 – In phase 6, medium-term breaks through long-term rise
The probability of moving sequentially from 1 to 2 is 70%
The probability of moving backwards from 2 to 1 is 30%
If we invest in an upward trend, it is right to avoid phases 2, 3, and 4, which indicate a downward trend.
So, let’s find out how to use the slope of the moving average to determine whether the current trend will continue or move to the next phase.
Determine whether entry is possible using the slope
We want to invest in phases 5 and 6 and get the trend of phase 1. Then how can we know whether it will go to phase 1?
We can look at the slope of the long-term moving average. If the long-term moving average is holding its head, it is okay to enter first.
Predict whether the stock will stay in the current phase or move on to the next phase
We want to sell in advance and get out when it is certain that we will go to phase 2 when the trend in phase 1 ends. Then, how can we know whether it will go to phase 2?
We can look at the slope of the medium-term moving average. Has the slope of the medium-term moving average broken? Sell right away. Is the slope of the medium-term moving average horizontal? Sell.