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 session will explore two arrangement patterns of Moving Averages (MAs) - the bullish pattern and the bearish pattern.
1. Bullish pattern (1) What is a bullish pattern? The bullish pattern is defined by a specific arrangement of Moving Averages (MAs) and candlesticks. In this pattern, the short-term MA, medium-term MA, and long-term MA are aligned in descending order from the top and all exhibit an upward trajectory. For instance, in a daily candlestick chart, a bullish pattern is formed when the 5-day, 30-day, 60-day, and 120-day MAs are all trending upwards and are positioned in descending order from the highest to the lowest.
The formation of a bullish pattern signifies that all timeframes are showing positive momentum, indicating a strong upward trend in the market.
(2) How to identify the bullish pattern?
①. It usually emerges in an upward trend;
②. The candlesticks, short-term MA, medium-term MA, and long-term MA are arranged from top to bottom, and all point upward.
(3) Technical meanings of a bullish pattern The bullish pattern is often indicative of a strong, upward-trending market, making it a potent signal for entry. Specifically, traders who do not currently hold positions in the asset should consider this pattern an opportune moment to enter the market. They should be prepared to open buy positions decisively when conditions are favorable. For those already holding positions, the emergence of a bullish pattern should reinforce their confidence in their investments, encouraging them to maintain their holdings. In such a scenario, it's crucial to avoid premature withdrawals, as this could result in missing out on potential profits.
(4) Usage ①. Use case
Consider the daily candlestick chart of Gate BTC futures as an illustrative example of a typical MA bullish pattern. In this chart, the Moving Averages (MAs) - MA5, MA30, MA60, MA120, and MA180 - are aligned in descending order from the top, each trending upwards. This arrangement signals that the BTC market is experiencing a strong bullish trend.
(5) Notes ①. The longer the Moving Average (MA) period, the greater its stability, but this also results in a more significant delay in signaling. While longer MAs provide more reliable trend data, they may not be as responsive to immediate market changes. ②. Long-term MAs are praised for their stability, yet they are often criticized for their lack of timely signals. This stability and delayed response are intrinsic characteristics of MAs. The bullish pattern is subject to this same limitation. It can exhibit a substantial lag, meaning that the market might have already been in a bullish phase for a considerable period before the pattern becomes evident.
2. Bearish pattern (1) What is a bearish pattern? The bearish pattern represents a reversal of the bullish scenario. In this setup, the candlestick (K-line) trend and the Moving Averages (MAs) – short-term, mid-term, and long-term – are aligned in ascending order from the lowest to the highest, with each one pointing downward. For instance, in a daily candlestick chart, a bearish pattern is identified when the 5-day, 30-day, 60-day, and 120-day MAs are arranged from bottom to top and all exhibit downward slopes.
This pattern suggests a market scenario where a significant number of traders, including both long-term investors and swing traders, find themselves caught in declining positions. It is indicative of a market in a bearish phase, signaling widespread pessimism and a general trend of selling.
(2) How to identify the bearish pattern? ①. It emerges in a downward trend; ②. K-line, short-term moving average, medium-term moving average, and long-term moving average are arranged in order from bottom to top, and in most cases, they all slope down along a trajectory shaped like a downward arc.
(3) Technical meanings A bearish pattern serves as a crucial signal for exiting positions, as it often precedes the onset of a bear market. This pattern typically manifests when there's a shift from a bullish to a bearish price trend, indicating the start of an extended bearish phase that could lead to a substantial decrease in the asset's value. Therefore, upon recognizing this pattern, traders are advised to act decisively and close their positions. This proactive approach is essential to avoid potential losses during the anticipated downturn.
(4)Usage ①. Use case
The above candlestick chart of Gate BTC futures clearly shows a prolonged downward trend in the market. This is evident from the arrangement of the Moving Averages (MAs) - MA5, MA30, MA60, MA120, and MA180 - which are sequentially ordered from the lowest to the highest, all trending downwards. During this bearish phase, BTC witnessed a significant 12-month decline, plummeting from a high of US$69,000 to around US$16,000. This represents a drop of over 70%, dealing a severe blow to the entire cryptocurrency market.
Notes: ①. While a bearish pattern typically suggests shorting a position, waiting until the pattern fully forms can often be too late for optimal trading. A savvy trader should be prepared to exit as soon as early signs of a downturn appear. However, entering a position requires more caution compared to exiting. It's advisable not to initiate new positions until all entry criteria are fully met.
②. In practical trading, initiating short positions only after the bearish pattern has fully formed can be a missed opportunity. Instead, traders should be vigilant for early bearish signals, such as a peaked candlestick, a breakthrough of the downward trend line, top reversal technical patterns, a breakdown of the upward trend line, or moving average death crosses. The guiding principle in trading should be to exercise caution when opening positions, but to act swiftly and without hesitation in closing them when the indicators suggest so.
3. Summary Given the inherent delay of moving averages (MAs) in reflecting market changes, it's recommended to pair them with other technical analysis tools for a more accurate assessment of market conditions. Tools such as candlestick (K-line) patterns, trend lines, and other technical indicators can be particularly effective in identifying entry points. When used in conjunction with MAs, these tools can mitigate the lag associated with MAs, thereby enabling traders to identify trading opportunities more promptly and accurately. Start trading futures by registering on Gate Futures.
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.
