Technical analysis is a trading strategy that uses historical price data to predict the future value of an asset. Technical analysts will use graphs, charts, and indicators to identify patterns in market behavior.
Technical analysis is the process of analyzing the price, volume, trend, and other indicators to predict future values. Cryptocurrency day trading is a risky business because it requires a lot of experience in order to be successful. Read more in detail here: technical analysis for cryptocurrency trading.
Day trading cryptocurrency may be lucrative, but it requires a hands-on approach. You must choose a trading strategy and grasp technical analysis. To obtain the greatest outcomes, get a thorough knowledge of these two components before diving in.
In a minute, we’ll go through the basics of technical analysis.
Before we begin, let’s review…
Is it Better to Leverage Your Trade or Not?
The majority of day traders use technical analysis to make good decisions. Within a short period of time, they can correctly anticipate price changes. They can win nearly every trade due of their knowledge of chart reading and pattern identification.
Being a good trader, however, entails more than just picking the proper entry and exit points. Another important aspect is maximizing your earnings (profits), and here is where leverage trading may help. When actively day trading crypto, the most successful traders utilize at least some leverage – ranging from 5x to 20x is suggested.
When you leverage trade, you borrow money to raise the risk of your investment in exchange for a greater possible profit. A 20x leverage means that every $100 you spend gets you $500 to trade with, and it only takes a 5% price change to double or destroy your investment.
A Note on Managing Your Cryptocurrency Bankroll
If you don’t utilize leverage, you may day trade with 100% of your investment money. Without it, the risk of a poor decision is less, and there is little to lose on any one transaction. When you engage in leveraged trading, or if you participate in ICOs or keep cryptocurrencies for a long time, crypto bankroll management becomes even more essential.
Leverage trading seems to be risky since a little price change may wipe out your whole investment. The reality is that most individuals use bankroll management to allow them to engage in high-risk activities without jeopardizing their whole financial portfolio.
We (along with others) suggest that you never spend more than 10% of your total money in a single high-leverage transaction. At 20x, all it takes is a 5% price movement against you to lose all you’ve invested. Of fact, achieving a 5 percent advantage in your favor is very simple — particularly if you understand technical analysis. Play it safe and don’t risk blowing your bankroll, since the large number of wins will generously reward you in the end.
“But I only have $500 to invest; what’s the point of playing with $50 at a time?” you may be thinking. You must understand how a single play may turn against you. If you know how to trade, 10 unsuccessful transactions at 20x leverage is very improbable. Two missed calls, on the other hand, is likely to be enough, and at $250 per transaction, you’d be out of money. Then you must decide if you are comfortable putting additional money to attempt again.
Remember, you’re a novice, and the only way to improve your trading skills is to get real-world experience. When you double or treble your original investment, learn from your mistakes and broaden your investing horizons. After you’ve gained confidence in your trading abilities, it’s occasionally acceptable to risk a larger portion of your money. You’ll know when you can be very sure about a price movement that’s just getting started at that moment.
Another crucial thing to remember is that you should not “roll your profits” into your next investment. Having more minor victories makes it simpler to increase your money. For example, $500 becomes $800, which is a 60% gain, but $800 becomes $500, which is a 37.5 percent loss; it’s simple for one bad transaction to set you back a long way.
Know if you’re trading in a bearish or bullish market.
Next, we’ll look into the technical analysis variables…
It’s crucial to understand the difference between “bearish” and “bullish” markets before you begin trading. You wouldn’t believe it if I told you — When Bitcoin was last in a genuine bear market, it was trading at about $200. Back in late 2015, such was the case.
Bear and bull markets do not develop over the course of a single day. When making day trading choices, it’s not something you’d usually think about. It is, however, a long-term element that may still influence your choices.
Many examples will be provided based on the price fluctuation from late February to early March 2018. This was the moment when Bitcoin recovered from its $6,000 low after reaching an all-time high of $19,000. It’s price action that most of you have seen, and it’s a great illustration of how you can earn a lot of money betting on prices falling.
Take a look at what happened to the price of Bitcoin…
Bitcoin Weekly Chart
What you see is the price of Bitcoin rising from the summer of 2017 to its high in the winter of 2018. By the end of the year, the price had risen to an all-time high of almost $19,000. We didn’t see the market go back down until after this top was discovered.
Now we’d want you to take a closer look at this graph. Weekly candles aren’t always the most expected, but they always tell the most interesting tales.
Here’s what you should know…
Do you notice those two lines that move with the price? The upper band (in blue) is known as the “upper band,” while the lower band (in yellow) is known as the “lower band.” The price channel is determined by the “bollinger bands.”
When establishing the price channel, do not depend only on bollinger bands. You should also create your own trend lines. To do so, use an upper line to mark as many highs as feasible, and a lower line to record as many lows as possible.
Moving averages make up Bollinger bands. The blue line in the picture above has a 7-day moving average, while the yellow line has a 30-day moving average. The 7 and 30-day intervals are stronger near-term indicators than the 50, 100, and 200-day emas (exponential moving averages), which are more frequently cited.
Identifying “bullish trends”
What are we hoping to see? Simply said, the bottom band should remain low while the top band should remain high. We’d want to see trade occur inside or above this range (price channel). A bullish price channel is shown in the diagram below.
Higher highs and higher lows are the foundation of a bull trend (lower highs and lower lows are the foundation of a bear trend). The market thinks the price will continue to rise. As a result, individuals see the value in buying at the support, and they begin to purchase as the price approaches the bottom line. The safe entry point continues to rise until the price falls below it.
A day trader would try to purchase near the support and sell around the prior high point. If the price breaks out and finds support above one of these highs, a trader may take a long position.
Identifying “bearish tendencies”
Let’s put all of this together to gain a better grasp of how trends operate. On the weekly chart we gave you, we’ll look at the price channel that leads into the last candle.
First, there’s the ascension…
This is a chart for the day. As the market hit an all-time high in November and December, the price found support around the upper band. The downward movement was quite foreseeable, regardless of how powerful the trade was on the way up.
What went wrong?
The top band support was broken, and the price objective was moved to the bottom band. This zone was tried as a support, but the market rose so quickly that it required a miraculous rebound to stay up with it. Around the $14,500 mark, the bands crossed.
For a brief while, the price found support around the lower band, but it was unable to establish solid support above it. As a consequence, the prior bull run was unable to resume, and a price discovery occurred at lower price levels.
Here’s what occurred after that…
You’re looking at a different Daily graph. This one depicts price movement from the beginning of 2018, after Bitcoin’s near-all-time high. Inability to recover from the robust rise culminated in a sharp decline. In little over a month, prices fell from $19,000+ to a low of $6,000.
There are a few key conclusions from this graph…
- When the bands crossed back and stayed up on the first support test, it was considered a “return to bull trend signal.”
- When the top band held as a support for the first time, it signaled a “return to bull trend confirmation.”
- As we saw previously in the Weekly chart when the same support line collapsed, a breach of the upper band support resulted in a significant price decline.
- If the price continues to fall for a few more days, the lines will cross again, signaling a continuation of the bear market and a retest of the $6,000 bottom.
- On the way down to $6,000, the price encountered significant resistance around the $12,000 level, which it also struggled to overcome.
- If the price found support over $12,000, the market would have signaled that it had shifted back to positive.
What’s noteworthy is that many day traders fell for the hype. On Bitmex, the two daily red candles resulted in a slew of $1 to $10 million liquidations, as well as a slew of additional leveraged trading losses.
When the price steadily went upward after the $11,000 barrier was broken, everyone believed their investments were secure. The market had only just turned bull, but the vast majority of analysts were already predicting $14,000 to $17,000 as the next goal.
What can we learn from such a unique situation?
If you performed these moves correctly, you’d be among a small group of people. The accident occurred considerably later than anticipated, and everything seemed to be in good working order before to it. The wisest course of action may have been to stay out of the market for a while.
When bollinger bands are wavy, it’s easier to get caught by misleading signals. Your objective is to identify a price channel that is dependable and then trade that range. The market dropped to a low of $6,000, which was obvious at the time. It was safe to trade upward until the lines crossed back to normal. Before recapturing a natural upward price channel, Bitcoin had a lot to prove.
We understand that you can’t avoid the most turbulent times since that’s when a day trader makes the most money. Understanding how to read candles and where to set stop-losses is the only method to trade any price movement safely.
Now that you’ve learnt about reading patterns, let’s concentrate on those two points.
When Day Trading Crypto, Look for the Following Candles
Candles are price movement indicators. Others are indifferent, while others are optimistic or bearish. The amount of bullishness or bearishness they suggest is determined not only by the kind of candle but also by its timing. While it’s essential to understand the concept of a candle, reading candles isn’t a precise science.
Anyway, here are the bullish and bearish versions of the same candle…
The green candle is bullish, indicating that the price rose from the time it “opened” to the time it “closed.” If you’re looking at a daily chart, the beginning of the day is when the candle opened and the end of the day is when the candle closes.
On these candles, the low and high points are shown as “wicks.” People seem to be more optimistic in the uptrend within that time period as the green drives closer to the peak. The closer the low gets to the bottom, the more individuals are willing to gamble on negative momentum.
You can’t convey the whole tale with only one candlestick. You must examine a candlestick chart, such as the ones shown in our previous examples.
Check the meaning of a candle by looking at the trading volume.
You should also examine the trade volume that is driving these price changes. There is no proof that the candle is a reliable indication if the market goes higher with little volume. The RSI (relative strength index) is a reliable indicator of volume verification in most cases.
During a significant upward move, RSI readings will rise into overbought area (70 and above). A move down into oversold area (30 and below) will increase the likelihood of a significant downward fall.
Candlesticks come in a variety of shapes and sizes.
“Bullish Hammer” is a name for a weapon used by bulls.
When the $6,000 bottom was reached, we witnessed a bullish hammer. After a severe downturn, when the market attempts to aggressively lower the price but is met with purchasing volume, this candle appears. The wick dips very low (prices plummet), while the candle’s body remains at the top. The explanation for this is that the market had a significant sell-off, but it rebounded from that low point and ended the day near to or above where it began. It doesn’t matter if a bullish hammer is green or red; what matters is that it recovers quickly from the main low.
“Inverted Hammer” is a phrase that means “inverted hammer
This hammer is negative and indicates that the market has failed to rebound. Whether the chart is red or green, it conveys the same story: the bulls failed to gain ground when they tried to raise the price aggressively.
When you see this candle, however, you should not enter any additional short positions since the bulls are getting more daring. Also, keep an eye on the upcoming upswing and seek for a solid opportunity to go long shortly, as buy volume is arriving and a support level and price rebound are approaching.
“Hanging Man” is a film about a man who hangs himself.
This candle appears when the market is gradually rising and then becomes overbought. It’s a positive sign because it indicates that, despite the presence of sellers who formed a sell-off wick, purchasers kept the price from falling. We take this as a signal that there will be a short-term support test, despite the fact that it is a bullish indication. To obtain a better entrance, hold off on buying in and wait for a second sell-off at a level below the wick of the Hanging Man candle.
“Doji Candles” is a term used to describe a kind of candle.
When there is an effort to move the price up and down, but the market eventually consolidates in the center by the time the candle closes, it forms a doji candle. These candles may sometimes be little more than white noise.
It is, however, often a sign that either bears or bulls have complete control of the market. You can’t trade well off dojis, but you may anticipate more volatile price movement thereafter. When the chart is filled with doji candles, the market seems to be extremely indecisive.
“Confirmation Candles” are a kind of candle that is used to confirm something.
When a resistance or support level is successfully broken, a confirmation candle will appear. The first candle will cross the threshold, while the confirmation candle will maintain the new range. The green candle will remain above the prior resistance line if resistance breaks (turning it into a new support level). The red candle will remain below the prior support line if support breaks (turning it into a new resistance level).
Make sure the confirmation candle is accompanied by a loudness increase. If it isn’t, there will very certainly be a swift and severe reversal. When trying to break out, the market’s confidence must be strong. A lack of volume indicates that the present market is at the wrong place at the wrong time or in the wrong direction.
Making Trading Decisions Using Candlestick Patterns
Candlesticks take on many shapes to create patterns. When you can read patterns, you’ll be able to make more informed trading choices. These patterns are predictors of where the price will go, while the candlesticks themselves explain why the price is where it is right now.
Some of the most essential trends to know while day trading cryptocurrency are listed below.
Elliot Wave Theory is a theory that describes how waves move in space.
“Elliot Wave Theory” is a theory proposed by Elliot. These factors are a big part of figuring out when the market is ready to take off again. When forecasting move sizes over a long-term chart, this trading technique is most common.
The most popular Elliot Wave pattern has five different variations. A typical 5-wave Elliot Wave pattern is shown below, along with certain criteria it must follow in order to be accurate.
An A-B-C pattern will form if the wave hits support. There will be an effort to keep the five-way cycle continuing if it breaks to the upside, but if it breaks down, there will be a decline until A-B-C waves develop and break out. When the price falls following a completed fifth wave, the market will also seek for a successful A-B-C wave pattern before trying to rebound.
A failed A-B-C breakout may be seen in the picture above.
*This is the most difficult kind of technical analysis to learn. Those who master it may make very successful trades simply by reading waves and forecasting movement magnitude using fibonacci retracements. Do not invest based on the Elliot Wave Theory unless you have spent a significant amount of time researching, watching videos, and effectively “paper trading” this technique.
Levels of Fibonacci Retracement
Fibonacci retracement levels are ratios that markets watch for as possible resistance and support levels. The ETH/BTC ratio peaked at 0.126 in the picture below before plummeting by more than 35% in less than two weeks. The market experienced little rebounds at the 0.618 and 0.786 retracement levels throughout this period. Those bounces’ upward progress was stopped around additional fib levels.
It will be a 1:1 ratio if the market pulls back to the commencement of the pump (where you want to measure from). Extended fib levels extend beyond this point, as shown by the retracements computed past the pump’s commencement.
In both bull and bear markets, Fibonacci retracements are employed to calculate movement. When estimating how far down the price could go before attempting to locate support, you want to start at the top. When the price stops dropping at the 0.618 and 0.382 levels, it’s usually a good idea to initiate a trade with tight stops.
Here are some examples of fib retracements that may occur when following a five-wave Elliot Wave pattern, as well as A-B-C ratios to look out for.
So, if the price is on the rise… When you see Wave 1 has developed, what do you do? Look for long entry opportunities around 0.618, 0.5, and 0.382 on the way down.
We don’t suggest buying at the 0.5 mark on the spur of the moment. Because it often retests 0.382 (leaving little space for tight stop-losses), this level is the most difficult to profit from, and if 0.382 breaks and Wave 1 is called off, the losses would be significant.
A bounce at 0.382 will put us in Wave 3 (the biggest and quickest wave), and we’ll be in excellent shape since Wave 4 won’t correct below the top of Wave 1, ensuring that our stop-loss is not reached.
Understanding Elliot Wave and Fibonacci retracement levels can allow you to identify larger patterns at work. Day trading these moves offers more safer profit possibilities. Following that, we’ll present several patterns that are just “trends inside trends”… These indicators are a little riskier, but if you want to scalp trade them, you may still make a lot of money.
The bullish pennant is a powerful indicator to have on a chart since it indicates that there is no fear of prices rising. This movement aids in pushing a price higher in a wave, and the upside potential on these trades is considerable when the pattern is confirmed.
This strategy begins with a significant price increase on volume. The price continues to rise, bringing it closer to the top of the spectrum. The lows will continue to rise without the price breaking down, and the highs will rise even more. If the price breaks out of this channel, the market may rapidly fall below the start of the bull pennant, as shown by the blue arrow.
The dotted green line in the image represents the maximum price, which you can see was on a candle wick. A green candle body is now going through it, indicating that another new high is on the way — if it breaches the upper yellow line (top end of the upward trading channel), it will indicate that a fast price rise is on the way.
Note: A bullish pennant is the most bullish kind of flag. You may set a stop-loss at breakeven and flip to a short if the trend breaks apart if you enter a long when it first begins. In both situations, you’ll have a good chance of coming out on top.
Pennant of the Bear
A bearish pennant is a strong indicator that the market is about to fall hard and quickly. The technicals of this movement demonstrate that attempting to achieve a “higher high” indefinitely leads to failure. The bulls eventually give up, and the bears seize over, driving the stock below its previous low.
A bearish pennant is formed in the same way as a bullish one, but in the opposite direction. As long as the highs continue to fall and the price stays suppressed below the trendline that links the start of the flagpole, the pennant will remain intact. If the lows do not continue to rise, the price will collapse and reach a new low. If the upper trendline is broken, however, a rapid upward movement will occur.
You may be asking how we can anticipate a breakdown or breakout when a trendline is broken with such accuracy. The market does not always play out as expected in textbooks. A failing pattern will make more sense if you look at additional indications. For example, the chart may break higher on low volume but fail to obtain a confirmation candle, causing it to quickly collapse below the whole triangle.
Flags of the Bull and the Bear
Bull and bear pennants are eye-catching flags. The market wants to accept the narrative told by such trends. Bull and bear flags are sometimes less noticeable.
The distinction between flags and pennants is shown in the picture above. As you can see, a bull flag may be formed by using a flagpole and then moving sideways towards the top. The “triple bottom” you observe is extremely optimistic since it indicates that a specific price has held up as support for a long time. If a “triple top” develops, the price may begin a downward wedge or reverse its rising trend.
Handle and cup (bullish)
A cup and handle represents bullish growth over a longer period of time. For this, the Daily or Weekly chart is utilized; the least time required to create a cup and handle is seven weeks. It’s also possible that this pattern will take a long time to complete, possibly months or years.
The top of the cup is created at the start of an upswing with a movement of 30% or more. While correcting, the trend will shift bearish, and the cup’s baseline will develop at approximately a 15% to 30% retraction. When the market becomes excessively negative for an extended period of time — particularly if the pattern lasts months or years — a 50 percent base depth is conceivable.
What happens when the handle forms, for example? The market has formed a “double top,” and trendlines for the second peak have been established. The assumption is that the market would follow this downward channel since the double top signaled that we wouldn’t be able to go higher. We envision a continuation beyond the market’s previous high point when the price breaks out with confidence and nullifies the negative channel.
What will happen if the cup and handle do not break free?
From a fundamental standpoint, the market will most certainly see a sharp dip before attempting to rebound. Finally, the cup’s baseline will be put to the test and shattered. The base will then become a fresh point of resistance, and the market will attempt to make new lows.
Handle and Cup (Bearish)
There are also bearish cup and handle patterns. These are more difficult to see and don’t necessarily result in violent outbursts, while the bullish C&H tends to be more aggressive. In a bear trend, we still suggest keeping an eye out for this pattern, since it’s a strong indication of a double top and a probable continuation of the downturn.
A bearish (“inverted”) cup and handle pattern is seen below.
This graph has the potential to go in a very good direction. The previous peak depth would have been challenged if the handle trendline was broken to the upside. A reversal would have been verified if the price had beyond that range and created a new support.
The inverted cup and handle, on the other hand, is difficult to break free from since the handle suggests a non-momentous upward movement. The trading channel rapidly develops close or above the previous high, and most reversals have a swift and strong rebound (with volume). Because the handle creation requires a steady upward movement in order to create the channel (and subsequently the breakout), it is nearly always accompanied by a sharp price decrease.
Right present, Bitcoin is exhibiting a beautiful inverted cup and handle pattern. The cup first appeared on the weekly chart in November 2017, when Bitcoin crossed $5,000 and continued to rise to its all-time high. That was 17 weeks ago, which implies the C&H pattern has taken longer than the required 7 weeks to develop.
Here’s what we’re on about…
When the $6,000 low occurred in the first week of February, the big red wick down occurred. After that candle, the C&H pattern’s handle begins. The second big red wick was created at a low of $8,342. The second low was higher, providing a channel on which to construct trendlines. Now, we’re expecting the market to follow this channel and break out either up or down in accordance.
A final decision will be made shortly. We understand that the market is under a lot of pressure to either fall down by a big proportion or to formally revert to an uptrend. The most concerning aspect is the downward trendline from the all-time high.
When the price reached over $10,500 in early March, we really broke out from underneath it. But it was just a matter of time until we were suffocated. We found support in the newly created handle, but price action in the $10,000 to $14,000 area is needed very soon to keep this trading channel alive.
The Daily chart is shown above. Changing from weekly to daily provides us a better understanding of where things stand and what has to happen in the near future to maintain the trend.
As can be seen, the price needs to quickly stabilize over $10,000. Right now, the upper trendline is around $14,000, which is a strong objective for a breakthrough. As part of the C&H pattern we’re attempting to depict here, if the price finds support above $12,000, we may see an effort to retest the all-time highs ($19,000+ in December 2017).
A triangle is a pattern, but it’s better to think of it as a charting strategy. The trendlines are forming a triangle shape, according to the theory. As a triangle approaches completion, the trading channel narrows. When a long-term triangle approaches its end point, a break upward leads to a significant price rise, while a break downward leads to a significant price decrease.
Triangle with Symmetry (Neutral)
On the Weekly chart, we see a symmetrical triangle that broke out but never got its confirmation candle. We broke through the upper trendline at $11,700. Because we produced a higher low, the following candle did not break the bottom trendline. A symmetric triangle does not always indicate whether it is bearish or bullish, but when it breaks out, it does.
This symmetric triangle, on the other hand, was constructed in such a manner that it reads as bullish. We have contextual knowledge in addition to technical indicator “definitions.” We observe a transition from a descending (bearish) triangle to a symmetrical (neutral) triangle in this situation.
Triangle Descending (bearish)
Upper trend lines in descending triangles continue to descend while the bottom trend line remains unchanged. The idea is that “the highs keep going lower,” implying that “time is running out before this house of cards comes apart!”
Take a look at the example we just gave…
We drew the bottom trend line using the body of the candle from the market’s $6,000 low. Whether you utilize the wick bottom or the body bottom is entirely up to you. For this situation, we want to know what’s going on right now – how can we see the present trend coming to fruition quickly? We presume the candle’s body is a support line, which it seems to be given the following major red wick’s low of $8,342.
As a result, we witnessed the body of a green candle rise over the upper trend line. The following week of trading saw a red candle, but the breakout hasn’t been rejected yet. The market believed we had reversed, but without that confirmation candle on the Weekly chart, we can’t be sure. This candle ends today (March 11th), and a closure above the trendline is the most bullish possibility. For this to happen, the price must remain over $10,000 on average.
What can we expect next if the price continues to fall? As a next measurement point, we’ll utilize the red wick from the $6,000 candle. As a result, we’d draw a chart with it as the bottom trend line, and we’d expect a retest of the $6,000 low in the near future.
Bring the various indicators together.
We went through how to make an inverted cup and handle. Right now, we’re in the handling phase. The descending triangle breakout occurred, but it has yet to be verified. A confirmation of a breakout from this triangle coincides with the upward channel of the handle continuing.
Meanwhile, if this triangle does not confirm, the market will soon run out of time to show that it is reversing, and the handle formation will disintegrate. The $6,000 low retest makes logical if that happens, given the downward momentum from the failed handle.
On the Weekly chart, we haven’t seen an ascending triangle in a long time. The breakthrough was truly stunning when it finally took form.
This triangle is intriguing since the breakout occurred just as the market was about to go wild. At the time, everything worked out wonderfully. Bitcoin day traders were expecting a big collapse, but the lows continued to rise after the $3,000 recovery.
Once $5,000 was passed, the price went higher and never came back down. What is the reason behind this? The fact that the bullish ascending triangle witnessed a genuine breakout mattered a lot in terms of technical analysis. The market, in fact, was paying attention to the rapidly rising bottom trend line.
Those who traded at the time understood how low sentiment was and didn’t anticipate a $5,000 break — even when it happened, everyone assumed it would just last a day or two. When everything is put on a chart (the beauty of TA!) everything makes sense.
Bullish Double Bottom & Bearish Double Top (bearish)
The “double bottom” is a simple trading pattern that occurs when the market makes a low and then finds support at that level the following time it is tested. After the retest fails and is met by a bounce, the double bottom is confirmed. While a double bottom is bullish, the magnitude and duration of the rebound must be determined using larger patterns and indicators.
A double bottom may be seen in the following example:
When the neckline is breached, a double bottom provides a strong bullish signal. The price “fell off a cliff” and found the first bottom, as you can see in the chart above. It tried that cliff (neckline), but then returned to the bottom and bounced once it found support. If the market can break through the neckline and convert it into a support level, trading may become positive.
On a chart, double bottoms resemble the letter “W.” The letter “M” is represented by double tops.
The following is an example of a double top:
When the market hits a high, corrects, retests the high, and fails to break through, this is known as a “double top.” The neckline will be put to the test as a backup. The pair will become extremely bearish if it is breached. The downward trend may continue hours, days, weeks, or even months, depending on the time period you’re looking at.
Shoulders and Head (bearish)
A head and shoulders pattern indicates the end of a bull run. The market drops after completion, aiming for a 1:1 correction. This implies that when the baseline collapses, the price will fall by the same amount it climbed before the pattern began. If the pump started at $9,000 and peaked at $11,000, for example, we would set a $7,000 target if the market broke down.
A typical head and shoulders pattern is seen in the picture above. The right shoulder may have a lower peak than the left, but it does not have to be equal. A higher right simplify indicates that the market has risen somewhat from its recent high. A double top — as well as a failed double bottom attempt against a pre-existing support line — is still visible, which is very bearish.
Head and Shoulders inverted (bullish)
An inverted head and shoulders chart pattern is the same as a normal head and shoulders chart pattern, but reversed. It’s a little more difficult to notice aesthetically, but it’s the same idea and importance.
This diagram shows where you should go long and where you should set a stop loss. You have a greater chance of earning with the inverted head and shoulders since you are taking less risk. It is absolutely safe to enter from a location near the top of the head.
Your stop loss will be close by.
Only high volume will cause the head level to break, ensuring a safe halt. If it does bottom out here, it will be a “triple bottom,” with a higher low this time. The price will very certainly rise, putting a strain on the neckline where the left head initially appeared. If that level is breached on volume, the market will attempt to break through to the upside with a 1:1 ratio.
When a confirmation candle emerges, keep an eye out for volume validation. The volume indicators will inform you whether a support or resistance level has been breached.
Please be aware of the chart timeframes.
Remember how previously in this tutorial we showed you a Bitcoin Weekly & Daily chart? We sought to explain why motions seem to be more predictable over time. This information is useful since it reveals the actual levels of support and opposition.
Price channels are the noise that occurs between larger movements at important support and resistance levels. When you take a position just above or below a major support or resistance, your trades are the safest. They’re also quite safe if you grab a long position when a resistance first becomes a support, or a short position when a support first becomes a resistance. Whatever the case may be, you’ll need to know how to plot these long-term support and resistance levels.
The Weekly chart was used to demonstrate a significant price change. The all-time high of $19,000+ plummeted to a low of $6,000 in a matter of days. Once the weekly candle first broke the upper bollinger band with conviction, the recovery took form and the “uptrend” was regarded as having returned.
When day trading, which timeframe should you use?
HINT: We won’t suggest a certain period, but we will show you how to trade Bitcoin in a dynamic way. We’re going to teach you how to examine the $6,000 low in February 2018 and the failed reversal, as we said before. You’ll see how the re-crash was foreseeable and how predicting it would have netted you a lot of money.
We advise you to look for good transactions.
Because Bitcoin is just one asset, don’t restrict yourself to day trading it. You won’t come upon extremely lucrative trades every day.
Many other cryptocurrencies with a decent trading volume, on the other hand, make significant movements in the same way Bitcoin does. You should be charting a few currencies, keeping an eye on important price levels, and acting when you sense an opportunity.
One strategy to think about is…
Look at charts with shorter periods — primarily 5 and 15 minutes — to see what sort of activity is occurring right now. Is there an upward or downward trending channel?
If the short-term chart seems to be predictable, go on to the 1-hour chart. The price movement for the last 30 hours or so is only seen on the 15-minute chart. The 1-hour graph contains data for more than five days.
Using this approach, we can identify the exact time when the price of Bitcoin plummeted from its claimed rebound.
This movement was a foregone conclusion.
We got a “confirmation candle” when the price fell below the blue line, suggesting that the downward trend was going to become severe.
See what’s going on here?
On this chart, the candle with the white box confirms that the price will continue to fall (1-hour timeframe). We may either make a trade during that candle or wait for a better chance to sell short. If you wait for the levels to retest, you may be able to obtain a better sell price. However, they were wavy before this, and the chances of a quick recovery were little to none at this point.
After making a bearish cross — where the yellow line (30-day moving average) crossed above — the price moved to trail along the blue line (7-day moving average). This indicates that the market is falling faster in the short term than it is rising in the medium term.
A safe trade would have been a short sale near the bottom of the confirmation candle’s body. Your admission would have cost approximately $11,200. The next step is to choose when to close your trade and where to place your stop-loss order. Assume you’re using 20x leverage, which implies a 5% increase would wipe out your investment.
You’ll lose the deal for $11,760 if you pay 5% more than $11,200. As a result, you may be certain that your short will not liquidate in the middle of additional range trading. If the market is really falling, you’ll need to discover a new local top in order for your trade to become a loss. So, in this instance, we’ll just let it ride and not worry about a stop-loss!
By looking over a longer time period, you can determine the “bottom”…
We’re now looking at a 4-hour chart, which represents approximately three weeks of trading data. In this point, the tale of Bitcoin’s price becomes even more bleak. We’ll explain what you’re seeing right now since you’re not a seasoned trader yet.
“The Bottom” is a phrase that refers to the lowest point
We suggest starting your trade around $11,200 and deciding on a bottom price to exit at. The line you see at the bottom of the final red candle on the chart was that milestone. That candle has nothing to do with it. Honestly, the previous low of $9,200, which occurred around February 25/26, was a good indicator of where the price would go after the 1-hour uptrend was broken.
That’s the point we’re trying to make. Don’t trade simply on the basis of one chart. Also, unless you’re trading 24 hours a day or utilizing 33x or greater leverage, disregard 1-minute and 3-minute charts.
We’ve chosen to enter at $11,200 and risk the whole of our investment in the hopes of exiting around $9,200. If the whole move goes our way, we’ll have predicted an almost 18% price decrease. If you had put $1,000 into the transaction, you would have earned $3,600.
That was a wise and clear forecast. So, what do we do now that the market has met our expectations? We must determine how it will react to the new downward trend. We know that the price has recovered since it was $6,000, so there’s still a lot of potential for it to fall further. We could theoretically maintain our current position, but your objective should be to grow your cash balance, and locking in gains is critical to becoming a regular winner.
“The Fake Recovery” is a film about a fake recovery.
Okay, so in a hurry, the price dropped to $9,025. Because the market had previous support at that level on the 4-hour chart, the hourly candle failed to sell below $9,250. Because the 4-hour chart support line has broken, the market is virtually guaranteed to try to push the price further lower. The only way to halt this move is for purchase volume to come in and prevent a further decline, turning the $9,200 level become a new floor.
The market is very negative, therefore a re-test is likely to be successful. We’re now looking at longer-term charts that are influencing the present trend. The second important chart to look at is the 12-hour chart, which shows the $6,000 low. Many traders, on the other hand, go straight to the 1-day chart since the 1-day is usually always challenged when the 12-hour plays into the pattern.
This is the Daily chart from the beginning of Bitcoin’s price rebound after the $6,000 bottom.
Today, the confirmation candle was lit. The bollinger bands are now two strong resistance points, we can be confident. If we can initiate a fresh short position around the $9,800 price level, we would be extremely pleased.
However, the clock is ticking…
Right now, the Weekly chart reveals a far larger picture. On Bitcoin’s s-curve rise, we’re witnessing a full reversal to negative. Yes, from early 2017 to today, there has been a complete shift in market attitude. The bollinger bands are poised to make the final bearish cross, as seen in the Weekly chart below.
On the Weekly chart, we can observe a symmetric triangle coming to a conclusion. The price will fly up or down depending on how this triangle ends. It’s occurring amid a negative trend, which is a sign that the price is about to plummet.
The RSI levels underneath the volume candles help to clarify the narrative.
When FOMO (fear of missing out) sets in and everyone is purchasing and thinking the price is going up, the RSI of 70 or above is considered “overbought.” We remained in overbought territory till the end of the year. The neutral zone is 50, and the start of the “oversold” RSI levels is 30; the price action is just hitting neutral at $9,200, indicating that the market can take a lot more negative momentum right now.
For the following move down, I’m going to re-enter the short sale.
If we’re re-entering a short position, we’ll aim for the upper band on the Hourly chart as a goal. We are extremely unlikely to be liquidated at this level since the upside is restricted until the market really turns bullish. In six hours, that level fell from $10,100 to $9,800. We may not reach the upper band before the market sells down again, based on the fact that the market is exhibiting a big push down on the Weekly (large triangle test).
We may choose for a lower band retest, which would require us to wait until $9,600 to execute a short sell. To liquidate our position, the price would have to rise to $10,080 from $9,600. Given the current massive downward pressure, this shift is very improbable. However, it’s a lot more likely than the $11,700+ rebound we saw when we sold the $11,200 short.
That is what you must understand!
Within a range, you can’t anticipate the trading waves. When the market seems to be doomed, the price will sometimes surge up 10% to wash out the short traders. Flash sell-offs may occur to wash away longers when the market is cleared for a big run higher.
Do you really want to take a chance on a fantastic position for a little profit? The $11,200 call was a fantastic one, and if you played it in time, it’s certainly worth keeping. However, if there were no longer-term charts indicating a prolonged decline, liquidating and waiting for the next scalping chance would make perfect sense. This one’s a keeper… Take it in stride!
Have you noticed what happened?
Before collapsing, the price had only rebounded to $9,471. By the time it reached that level, the lower band had adjusted down to this level. As a result, the lower band price-point was potentially a good place to re-enter a short position.
The issue is that you might have called a retest of this line when it was $9,600 and only caught the move if you continued reducing your sell order price. To maximize profit potential while minimizing risk, target your entry in real time based on bollinger band movements.
The $9,471 local (short-term) high was followed by a simple retest of the $9,025 low from earlier in the day. The consequence was a huge sell-off that sent the price down to $8,342, almost a third of the way down from the $11,700 peak before the dip. Holding onto your position here would have paid off handsomely – the price movement from $11,200 to $8,342 is more than 25%, resulting in a $5,000 return on a $1,000 short sell at 20x leverage.
Is it frightening to think about keeping your job? Things’s all about deciding when is the best moment to wait it out a little longer. On the Daily chart, the $9,200 level support challenge was an anticipated fight, but the Weekly chart revealed a different tale. It would have taken fewer than three days to complete this transaction.
Where Could Bitcoin’s Price Go Next?
Based on the trading analysis presented, we have already earned tremendous gains. The Weekly chart is at a crossroads, where it may either fall much more or recover violently. The latter is less probable since it necessitates a return to late-2017 volume levels.
We haven’t seen any oversold levels yet, however.
With the price around the $8,000 range, the RSI has failed to break 50, the neutral level before entering oversold territory at 30. Remember that “oversold” may also imply “underbought,” so when the RSI falls below 30, it’s usual for purchase volume to rebound, resulting in a price rise.
Right now, the Weekly chart looks like this. The big red candle at the end represents a week that hasn’t ended yet (two days remaining). We think the market has a good probability of continuing its severe downturn. The most probable possibility for this prediction to be correct is for the body of this candle to close below the lower bollinger band.
A closure below this level will indicate a major bearish cross the following week. It will be quite simple to get a confirmation candle (for the weekly interval) to play out at that moment. The size of the decrease is still unknown since it is dependent on a number of unknown factors. However, a $6,000 support level test is a certain conclusion (the top support line on the chart above). Without taking into account the psychological threshold of $5,000, the next significant support level would be $3,000, which was the low before the late 2017 pump began.
Let’s fast forward a little…
That’s how things have gone since the downturn (4-hour chart). Because the market double bottomed and experienced both a higher low and higher high, we’re witnessing a strong recovery.
After a confirmation candle above the first bollinger band, a beautiful bull flag formation formed. The flagpole lifted us over both lines, allowing us to keep the flag flying until the price breaks out. A large-volume upward move would be enormous at this time. The neckline would snap, and $10,000 would become a technical support rather than simply a psychological one as it had been before.
On the 3-day chart, we can also observe that an ascending triangle (bullish signal) is forming. Many technical indicators indicate that the price will either rapidly rise or tighten and play the $10,000 to $11,000 range before making a definitive move.
We need to be particularly cautious when it comes to day trading. A sudden absence of volatility frequently precedes these extremely turbulent periods. Many times, the price may vary within a narrow range, and these “choppy waters” might be extremely unprofitable. Our aim should be to track the price movement on a regular basis and wait for a crucial indication to indicate whether we should go long or short.
Remember that we previously showed you an inverted cup and handle Weekly chart pattern? That pattern is the most significant forming indication in existence as of the date of the chart above (which is the most recent one on this page). You’ll want to keep an eye on shorter time frames, but if the uptrend continues, you’ll want to return to the handle formation, since it’s the breakout that would indicate new all-time highs for Bitcoin.
Thank you for taking the time to read… Best of luck with your trading!
DISCLAIMER: The activity of the cryptoassets discussed in this paper is uncontrolled. This post is not intended to provide financial advice. Always do independent research.
The cryptocurrency technical analysis app is a tool that allows users to view the market for cryptocurrency. Users can also see the latest news about cryptocurrencies and their prices on this app.
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