From Monthly Chart Layout to Quarterly Chart Decision-Making: A Must-Know Technical Analysis Framework for Investors

Many investors tend to focus solely on daily K-line charts when making buy and sell decisions, unaware that monthly and quarterly lines are the true drivers of long-term trends. By combining fundamental analysis with technical indicators, we can more accurately grasp the timing of entry and exit points. This article will guide you to a deeper understanding of different cycle indicators such as monthly and quarterly lines, and how to interpret the genuine signals from the market.

Understanding Moving Averages from a Practical Perspective: Market Psychology Across Different Cycles

When we talk about monthly and quarterly lines, we are essentially observing the distribution of buying and selling costs over different time scales. Simply put, these indicators reflect the average purchase prices of investors over a certain period.

For example, consider the past few trading days of a stock:

The calculation is straightforward: sum the last five closing prices and divide by 5. For example, the 927.318 on March 26 is the result of (903.72 + 914.35 + 942.89 + 950.02 + 925.61) ÷ 5. Connecting these averages forms the so-called 5-day line.

Depending on trading habits, investors choose different cycles to calculate averages. The most common cycles are 5, 10, 20, 60, 120, and 240 trading days, representing a full spectrum from short-term to long-term:

Short-term traders pay close attention to the 5-day and 10-day lines, while medium- and long-term investors focus on the monthly (20-day) and quarterly (60-day) trends.

Four Classic Patterns of Monthly and Quarterly Lines

How should investors extract useful signals from monthly and quarterly lines? The key lies in observing the relationship between the stock price and the various cycle averages, as well as their relative arrangement.

Bullish Uptrend Arrangement

When all cycle averages are rising in an arc shape and are sequentially arranged from top to bottom as the 5-day, 10-day, 20-day, and 60-day lines, this is a typical bullish arrangement. At this point, the stock price has usually completed a correction and is ready to initiate a new upward wave. This signals a positive entry opportunity.

Persistent Downtrend Arrangement

Conversely, when all averages curve downward and are arranged from top to bottom as the 60-day, 20-day, 10-day, and 5-day lines, a bearish arrangement has formed. In this state, the stock is in a continuous decline cycle, with a high probability of further bottoming out. It is advisable to decisively exit.

Sideways Consolidation

If all cycle lines are parallel and show no clear trend, this indicates a temporary balance between bulls and bears, with the market in a digestion phase. At this time, observation is key, waiting for a breakout signal.

Indecision and Confusion

When the averages intertwine and rub against each other, it reflects a divided market sentiment. Usually, a major news event or data release is needed to break the deadlock and determine the next direction.

Golden Cross and Death Cross: Critical Points for Buying and Selling

When short-term cycle lines cross over long-term lines, two of the most famous signals emerge.

Golden Cross occurs when the 5-day moving average crosses above the 20-day line from below, indicating strong short-term buying momentum. Most investors are in profit at this point. Market confidence rises, signaling an upward breakout.

Death Cross is the opposite: the 5-day line crosses below the 20-day line, indicating increased short-term selling pressure. Many investors face losses. Pessimism dominates the market, serving as a risk warning.

Using Technical Analysis to Determine if Price Is in a Safe Zone

When the stock price’s daily K-line not only stays above the 5-day line but also remains above the 10-day, 20-day, and 60-day lines simultaneously, it shows that investors who bought within the past week, two weeks, month, or quarter are all in profit. This fully bullish pattern is a relatively safe entry zone.

Conversely, if the price remains below multiple averages, all buyers are in the red. If the price drops further, these trapped investors will face increasing stop-loss pressure, which can trigger a stampede-like decline.

Three Intrinsic Limitations of Monthly and Quarterly Lines

Although the moving average system is powerful, investors need to recognize its limitations:

Lagging Issue is the fundamental flaw. Since these indicators are based on historical prices, they tend to react slowly to trend reversals, making it difficult for investors to catch turning points in real time and potentially missing optimal entry and exit opportunities.

False Signals from Sudden Events also warrant caution. When a stock experiences sharp short-term fluctuations due to major news or data releases, the moving averages may generate misleading signals, confusing investors. During critical economic data releases or sensitive periods, it is advisable to use monthly and quarterly lines cautiously.

Limited Adaptability to Sideways Markets is the third problem. In markets with no clear direction and oscillating up and down, the moving average system can produce frequent false signals, leading to repeated whipsaws that drain trading costs and psychological energy.

Improving Your Trading Decision Process

In practical trading, investors should combine the analysis of monthly and quarterly lines with other technical tools and consider fundamental factors. Only when signals from these longer-term indicators confirm each other and align with the current market environment should action be taken.

By understanding the essence of moving averages, mastering various pattern features, and recognizing their limitations, you will be better equipped to make confident decisions in the market. Continuous learning and real trading practice are the only ways to enhance this skill.