Many traders share a common frustration — always buying right before a rebound and selling at the start of a rally. On the surface, it seems like bad luck, but in reality, it's due to an insufficient understanding of the moving average line. Today, I'll use a chart to clarify the underlying logic of short-term trading.

First, let's clarify the meanings of the two lines: the yellow line is the moving average line (usually the 20-day, 30-day, or 60-day moving average), and the black line represents the real-time price trend. The relationship between these two lines determines whether you should buy or sell.

Remember the core rule: In a strong trend, the moving average line acts as support; in a weak trend, it becomes resistance.

Regarding trading signals, there are several scenarios —

When the price first breaks through the moving average line, it often indicates a shift from a weak to a strong trend, marking the beginning of a new trend. Conversely, breaking below the moving average line signals you should exit immediately — this is a risk warning, not a prediction.

The most comfortable buying point is during a pullback that does not break the moving average. At this time, the main force hasn't left during the strong correction, but retail investors are shaken out. Similarly, if the price rebounds and touches the moving average without breaking it, you should exit — a weak rebound is essentially a signal to escape.

A sideways consolidation followed by an upward breakout is an entry opportunity — sideways movement isn't a waste of time; it's the main force gathering strength. Once it breaks out and the moving average turns upward, the trend is often substantial. Conversely, breaking below the previous low indicates the last line of defense for the bulls has collapsed, and the trend has reversed completely.

After a sharp decline, consider buying on the rebound, but only if you confirm the downtrend has ended — don't catch falling knives still in free fall. A quick reversal after a rapid rise should be sold immediately, as a rally far from the moving average usually indicates emotional exhaustion and will reverse quickly.

A simple trading rule: Only consider entering above the moving average; only consider exiting below it. Your losses are often not due to poor technique but because you keep going against the main force's trend.