TA Education 7｜NVDA Breaks Below 5-Day MA: Will Selloff Accelerate?

Hi, tigers! Here is Part 2 of MA: another 4 trading principles. Let’s start this week’s lessons!

1. Minor Breakdown: Fleeting Pullback Opportunity

• The Pattern: This occurs when the price momentarily dips below a rising Moving Average but quickly recovers and closes back above it. Crucially, the Moving Average line itself maintains its upward slope throughout the event.

• Market Implication: This signals a classic "shakeout" or "bear trap" rather than a genuine reversal. It suggests that the dip was an emotional overreaction that cleared out weak hands, leaving the primary uptrend intact and poised to resume.

• Mechanism: The brief drop triggers stop-loss orders situated just below the MA, creating a pool of liquidity. Institutional traders use this opportunity to accumulate positions at a "discount," rapidly absorbing the selling pressure and forcing the price back up above the average cost line.

2. Minor Breakout: The Failed Struggle of Weak Rebounds

• The Pattern: This occurs when the price momentarily rallies above a falling Moving Average but fails to hold the level, quickly collapsing back below it. The Moving Average line continues its downward slope during this fluctuation.

• Market Implication: This signals a "bull trap." It indicates that although buyers attempted a reversal, the prevailing bearish momentum and structural weakness were too strong to be overcome, confirming that the downtrend is still dominant.

• Mechanism: Optimistic traders chase the initial breakout, but the market lacks the capital inflow to sustain higher prices against the falling average cost. As the rally stalls, trapped holders seize the chance to exit near break-even, and bears aggressively defend the trend, crushing the weak recovery.

3. Excessive Negative Divergence: Post-Oversold Rebound

• The Pattern: This occurs when the price plunges violently and extends significantly below a falling Moving Average. The gap between the price and the MA becomes unusually wide, resembling a stretched rubber band.

• Market Implication: This signals an "oversold" condition. It suggests that the selling panic has reached an extreme and unsustainable level, increasing the probability of a corrective rally (or "mean reversion") back toward the average cost line.

• Mechanism: As the price deviates too far from the average value, sellers become exhausted and short-sellers begin to close positions to lock in profits ("short covering"). Simultaneously, value investors perceive the extreme low price as a bargain, stepping in to buy and fueling a rapid snap-back rally.

4. Excessive Positive Divergence: Post-Overbought Correction

• The Pattern: This occurs when the price surges aggressively and extends significantly above a rising Moving Average. The vertical distance between the current price and the MA becomes historically large.

• Market Implication: This signals an "overbought" condition. It suggests that buyer enthusiasm has pushed prices too far, too fast, making the trend vulnerable to a short-term pullback or consolidation as the price waits for the average to "catch up."

• Mechanism: When the price is far above the average cost, traders sitting on large unrealized gains feel compelled to sell and secure profits ("profit-taking"). This selling pressure cools the momentum, causing the price to retreat toward the Moving Average, which acts as a magnet for value.

1. Which stocks currently fit the four principles we learned today?

2. $NVIDIA(NVDA)$ has now broken below its 5-day to 60-day moving averages.

3. Does this mean it hasn’t reached an oversold condition yet, but already qualifies as a “breakdown sell” signal?

Leave your comments to win at least 10 tiger coins!

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@Shyon

I found this episode on Moving Averages very helpful — the explanations of SMA, EMA, and how MA reflects the market’s “average holding cost” made the concepts much easier to apply. The points on slope and inflection also gave me a clearer way to judge trend strength beyond basic crossovers.

In practice, I use the 200-day SMA for long-term trend direction, while EMAs like the 20 and 50 help me react faster in shorter timeframes. They give earlier signals, but I stay cautious during sideways markets to avoid whipsaws.</p>

<p>The AMD divergence example was a good reminder that price alone can mislead, and confirming MA signals with RSI or volume is essential. Looking forward to seeing everyone’s charts and sharing more insights in the event!</p>

@koolgal

🌟🌟🌟 $Alphabet(GOOGL)$ is a good example of a fast moving stock where recent information such as AI advancements , cloud performance or regulatory news, has a disproportionate impact on its price.

<p>I would use a shorter term EMA, such as the 10 day or 20 day EMA to analyse Google's strong rally in late 2025.&nbsp;&nbsp;&nbsp; The price consistently used the rising EMA as a dynamic support level , allowing me to identify opportunities to buy in minor dips while staying aligned with the immediate powerful trend.</p>

<p>EMA provides a more timely and effective tool for making trading decisions compared to the more slow moving generalised SMA.</p>

<p>Google is an excellent strategy of using the EMA to ride short to medium term trends for a high growth stock like Google.</p>