TA Education 8｜MA & Candlesticks: How to Combine?

Hi, tigers! Here is Part 3 of MA: MA & Candlesticks. Let’s start this week’s lessons!

1. Dragon Rising from the Sea: Single Bullish Candle Piercing Multiple MAs

• The Pattern: This rare and powerful formation occurs when a single, robust bullish candle (typically a large green Marubozu) rises from a low position and decisively cuts through multiple aligned Moving Averages (e.g., short, medium, and long-term lines) simultaneously.

• Market Implication: This serves as an explosive reversal signal. It indicates that a dormant or consolidating market has suddenly awakened with overwhelming demand, clearing multiple layers of technical resistance in a single session.

• Mechanism: By conquering the "average costs" of short-term, medium-term, and long-term traders all at once, this move unifies market sentiment. It forces short-sellers across all timeframes to cover immediately and signals to sideline capital that a new trend has launched with maximum conviction.

2. Guillotine Blade: Bearish Candle Breaking Multiple MAs

• The Pattern: This ominous formation occurs when a single, heavy bearish candle (typically a large red Marubozu) opens high and slices downward through multiple closely aligned Moving Averages simultaneously.

• Market Implication: This is a catastrophic reversal signal. Visually resembling a blade dropping to sever the trend, it suggests that structural support has collapsed across multiple timeframes, locking traders into immediate losses.

• Mechanism: When one candle violates the cost basis of short, medium, and long-term holders simultaneously, it triggers universal panic. With no immediate support levels remaining, the psychological shock leads to a rush of "panic selling" as traders from all timeframes attempt to exit at once.

3. Golden Phoenix Returns to Nest: Trend Continuation After Healthy Pullback

• The Pattern: This poetic metaphor describes a high-quality pullback within a strong uptrend. After a significant rise, the price (the Phoenix) gently retraces to touch or near a rising Moving Average (the Nest). Crucially, the volume decreases during the pullback and expands again as the price bounces off the MA.

• Market Implication: This signals that the trend is healthy and sustainable. It suggests the pullback was merely profit-taking by short-term traders, while long-term institutional support remains firm at the "average cost" level, offering a safe entry point.

• Mechanism: The "Nest" represents the safety of the average value zone. When the price returns here, the selling pressure dries up (low volume). As value investors recognize the discount, they step in to defend the trend, providing the energy for the Phoenix to soar again.

4. Carp Leaping Over Dragon Gate: Price Breaks Through MA with Heavy Volume

• The Pattern: This formation represents a decisive, high-energy breakout. The price, which may have been consolidating below a key Moving Average (often a long-term one like the 60-day or 120-day), suddenly surges above it. This move must be accompanied by explosive volume.

• Market Implication: This signals a fundamental transformation in the asset's status. Just as the carp transforms into a dragon after leaping the gate, the stock transforms from a weak/consolidating asset into a strong trending one. The heavy volume confirms that "smart money" is fully committed to the move.

• Mechanism: The "Dragon Gate" is the resistance level or the Moving Average. Breaking it requires immense energy (capital). If the price crosses on low volume, it may slide back down; but the surge in volume indicates that the buying force is overwhelming the sellers, clearing the path for a sustained rally.

5. Dragonfly Skimming Water: Brief Pullback in Uptrend

• The Pattern: This delicate formation occurs when the price in a strong uptrend dips briefly to lightly touch or barely pierce a rising Moving Average (often a short-term one like the 10-day or 20-day MA) before immediately bouncing back up. The interaction is quick and shallow, often leaving a long lower shadow (wick) on the candle.

• Market Implication: This signals strong momentum with minimal selling pressure. It indicates that buyers are so eager they are unwilling to wait for a deeper correction, stepping in the moment the price nears the "average cost."

• Mechanism: Just as a dragonfly touches the water's surface without sinking, the price tests the support level without breaking the trend's structure. The swift rejection of lower prices confirms that the path of least resistance remains decisively upward.

Which stocks currently fit the five patterns we learned today?

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For the past lessons, you can click to read:

TA Education 1｜Understand Market Signals! How to Spot $MSFT & $TSLA's Uptrend?

TA Education 2｜How to Spot 2 Common Bearish Patterns?

TA Education 3｜2 Common Bearish Patterns - How to Spot Misleading Signals?

TA Education 4｜How to apply MA indicators in live-trading?

TA Education 5｜6 Common MA Patterns — Which One Do You Find Most Useful?

TA Education 6｜Breakout or Failed Rally: What Is MA Really Telling You?

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