One of the most overlooked aspects in the stock market is participants' psychological expectations. Recently, I’ve been studying the Moving Average Deviation Rate (BIAS) indicator, and I found that it actually serves as a tool to reflect this collective expectation.

Simply put, the deviation rate indicates how far the stock price deviates from the moving average line, expressed as a percentage. When the stock price significantly diverges from the trend, the likelihood of a pullback or rebound increases; conversely, the trend is more likely to continue. I think this logic is somewhat similar to the agricultural product market—when rice harvests are abundant, prices soar, everyone worries they can’t sell, and end up rushing to sell at low prices, which actually causes prices to fall. The psychology in the stock market is similar—when prices rise too much, everyone wants to sell; when prices fall too much, everyone wants to buy.

Regarding the setting of the moving average deviation rate, there are a few key points to note. First, choose an appropriate moving average period. Short-term typically uses 5, 6, 10, 12 days; mid-term uses 20, 60 days; long-term uses 120, 240 days. Then, determine the parameters for BIAS, commonly 6, 12, 24 days, but this should be adjusted based on the characteristics of the stock you’re trading. Stocks with high activity may require shorter deviation periods, which will respond more sensitively.

How to use the moving average deviation rate to identify buy and sell points? The core concept is to set a positive and a negative threshold as limits. For example, a 5-day deviation rate might be set around 2% or 3%, but this needs to be adjusted based on historical data. When BIAS exceeds the positive threshold, it indicates overbought conditions, suggesting a sell; when BIAS falls below the negative threshold, it indicates oversold conditions, suggesting a buy.

My personal approach is to combine multiple moving averages, such as observing both the 5-day and 20-day deviation rates simultaneously, to get a more comprehensive view of short-term and medium-term trends. Another very important technique is divergence—if the stock price hits a new high but the deviation rate does not, it could be a top signal; conversely, if the stock hits a new low but the deviation rate does not, it could be a bottom signal.

However, to be honest, this indicator also has limitations. First, if a stock is in a prolonged slow rise or fall, the deviation rate’s effectiveness is limited. Second, because the deviation rate has a lag, it’s not recommended to rely on it alone for selling; it’s better used as a reference when buying. Also, the effect varies significantly with market capitalization—large-cap stocks are more stable, and the deviation rate’s judgments tend to be more accurate, but small-cap stocks are more volatile, making it hard to judge solely based on deviation rate.

In actual trading, I suggest combining it with other indicators, such as the stochastic indicator KD, Bollinger Bands BOLL, etc. Using the deviation rate together with KD can make rebound trades more timely and accurate, while combining with Bollinger Bands is more suitable for buying during oversold rebounds. Parameter selection is also crucial—too short a period can be overly sensitive, too long can be sluggish. It takes some trial and error to find the most suitable settings.

Finally, I recommend using this indicator flexibly. Stocks with good performance and low risk rebound quickly when they fall because everyone fears missing the buying opportunity; but stocks with poor performance may rebound more slowly. Therefore, the same deviation rate setting may have different effects on different stocks, and strategies should be adjusted according to specific situations.