Highlights: ①. Gate's "Basic Futures Courses" course introduces various methods of technical analysis that are commonly employed in futures trading. These courses aim to help traders establish a comprehensive framework for technical analysis. Covered topics include the basics of Candlestick charts, technical patterns, moving averages, trend lines, and the application of technical indicators. ②. This article will explore the application of various Moving Average (MA) patterns, primarily focusing on MA adhesion, convergence, and divergence.
1. What is MA adhension, convergence and divergence? ①.MA Adhension MA adhesion generally refers to a situation where moving averages (MAs) of different periods converge or follow a similar path, especially after a period of prolonged market consolidation. This pattern can manifest at any stage of price movement, including consolidations at the top or bottom, sideways movements, or during a rebound.
②.MA Convergence Moving average convergence refers to the phenomenon that different period moving averages move towards each other, suggesting agreement in price trends . After MA convergence, the lines typically intertwine for a period. The direction in which the price moves after reaching the adhesion state indicates the potential future price trend. If, post-adhesion, the price continues in the same direction as before convergence, it suggests that the original trend will persist. Conversely, a change in direction indicates a potential trend reversal. Typically, following the breakdown of the MA adhesion pattern, an MA divergence is observed.
③.MA Divergence MA divergence refers to the process where moving averages (MAs) of different periods, after passing through the adhesion stage, begin to diverge, moving away from each other while maintaining the same overall direction. This divergence is categorized into bullish and bearish divergence. In a bullish divergence, the different period moving averages all exhibit an upward, or bullish, trend during the divergence process. Conversely, in a bearish divergence, all MAs trend downward.
When a bullish divergence is observed, it typically indicates a stronger and more significant upward trend. On the other hand, bearish divergence usually signals a greater potential for decline compared to other bearish patterns. Therefore, the observation of bullish divergence suggests an opportune moment to initiate long positions, while bearish divergence indicates a significant timing for entering short positions.
2. How to identify MA adhesion, convergence and divergence?
MA adhesion ①. After a long period of consolidations, mid-term, short-term, and even long-term MAs gradually move closer to each other, and will end up intertwined with each other; ②. Cryptocurrency price and candlesticks lines form shapes of rectangular, wedge-shaped or triangular; ③. It often follows after a clear upward or downward trend.
MA Convergence ①. This phenomenon can occur in both upward and downward trends. ②. The candlesticks and the moving averages (MAs) of different periods, which were originally diverging, gradually converge, moving closer to each other.
MA Divergence ①. It can emerge in both upward and downward trends. When observed in an upward trend, it is termed bullish divergence. Conversely, in a downward trend, it is known as bearish divergence. ②. The MAs of different periods exit the adhesion state and gradually drift apart, eventually diverging while moving in the same general direction.
3. Technical meanings
MA Adhesion: ①. When the moving averages are entangled and the mid-term and long-term moving averages predominantly trend above the short-term moving average, suppressing the currency price's upward trend, this indicates a high potential for market decline. The appropriate timing for an exit strategy emerges when the currency price falls below the support level. ②. During MA adhesion, if the mid-term and long-term moving averages mostly trend below the short-term moving average, reinforcing a downward trend in currency prices, this signals a high probability of an increase in the market. Traders should wait for the price to break above the resistance level before opening positions to enter. ③. In scenarios where the mid-term and long-term moving averages gradually level off, while the short-term moving average fluctuates around them, an upward or downward breakthrough is equally likely. Traders should observe the direction of the breakthrough before making a trading decision.
MA convergence ①. When the moving average converges, if the mid-term and long-term moving average keeps bullish both before and after the convergence, the market stands a high probability to rise; ②. When the moving average converges, if the mid-term and long-term moving averages go downward both before and after the convergence, it indicates high potential for the market to go bearish.
MA divergence ①. The presence of a bullish divergence serves as a significant signal to maintain or hold existing positions. ②. The bearish divergence provides a key signal for traders to enter short positions.
Notes: ①. Moving Average Divergence: This indicates a consensus among traders across various trading cycles regarding market outlook and aligns their trading actions. When such consensus is sustained, it implies the continuation of current market conditions, offering a crucial trading opportunity. It advises traders to adopt a definitive long or short position, depending on the prevailing situation. ②. Bullish and Bearish Divergences: These are significant bullish and bearish patterns that suggest a stronger momentum in the respective direction. Bullish divergence points to a robust upward momentum, while bearish divergence indicates a strong downward trend. ③. Moving Average Convergence: This pattern signifies a shift in the trading behavior of some market participants. However, traders should be aware that not all convergences are reliable indicators, and some may be false signals. Therefore, caution is advised when utilizing this pattern for trading decisions.
4. Use case ①. MA adhesion
The chart displays the Gate BTC futures with 4-hour candlesticks, highlighting a sharp decline where BTC's price dropped from around $39,000 to approximately $30,000. Following this descent, BTC entered a month-long sideways trend. During this phase, the MA5, MA30, MA60, MA120, and MA180 — representing the short-term, medium-term, and long-term moving averages — began to show a pattern of convergence. However, after this period of consolidation, BTC's price continued its downward trajectory, falling to $17,000. Accompanying this decline, the moving averages transitioned from a converging to a diverging pattern.
②. MA convergence
This chart exposes the Gate BTC futures with 4-hour candlesticks, capturing a sharp decline in which BTC's price fell from $21,500 to around $16,000. During this period, the short-term, medium-term, and long-term moving averages exhibited a shift from a diverging to a converging pattern. Following this decline, BTC experienced narrow fluctuations, oscillating within a range of $15,500 to $18,500.
③. MA divergence
The chart above shows the Gate BTC futures with 4-hour candlesticks. Following a continuous decline, BTC stabilized in a prolonged sideways trend around $16,000. During this phase, the moving averages — MA5, MA30, MA60, and MA120 — demonstrated a converging pattern. As BTC's price gradually started to increase, these moving averages transitioned from a converging to a diverging pattern. Notably, the short-term, medium-term, and long-term averages were aligned in descending order from top to bottom, all angling upwards. Corresponding with this shift in moving averages, BTC's price ascended from $16,700 to $23,000, marking an increase of over 35%.
5. Summary
The adhesion, convergence, and divergence of moving averages are common technical patterns that often provide crucial trading signals. When traders identify any of these patterns, they should first assess whether the current market trend will continue or reverse. This evaluation helps in determining the direction for potential trading positions. It's advisable to use other analytical tools in conjunction with these patterns for more accurate judgments. Once a position is initiated, maintaining it steadfastly is key. Employing this approach can significantly enhance profitability in trading.
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Disclaimer This article is for informational purposes only and does not constitute investment advice. Gate is not responsible for any investment decisions you make. Content related to technical analysis, market assessments, trading skills, and traders' insights should not be considered a basis for investment. Investing carries potential risks and uncertainties. This article offers no guarantees or assurances of returns on any type of investment.
