Greetings,
I hope you all are doing well, I am here to share my participation for Steemit Learning challenge season 23 week 2. I will try my best to answer all questions according to challenge requirements.
Technical analysis is the method used by traders to evaluate the market movements, whether it’s go up or down. They use some best technical indicators, find support and resistance and some other important chart patterns. TA works oftenly on factors such as; historical trading data and trading volume. Let’s talk about it’s key principles in context to Steem/USDT.
Trend Analysis
Trend analysis is just a simple phenomena which means, finding the market which direction it is going. Generally we have three types of trends; Up Trend, Down Trend and Sideways Trend. Trend identification generally help the traders to decide whether it’s time to buy, sell or hold their assets.
Up Trend: When the market makes higher high and higher lows.
Down Trend: When the market makes lower high and lower lows.
Sideways/Ranging market: When the market moves in a horizontal range.
STEEM/USDT Chart on 15 minutes Time frame.
On 15 minutes if we see Steem is in uptrend. It is making higher highs and higher lows. We can go for long if it touch the trend line again. Our TP and SL will be previous high and low.
Support and Resistance Levels
Support A level where buying pressure is more compared to selling. Here the buyers show more interest and don’t let the price come below this specific point.
Resistance At resistance the market is in seller’s control. We see a huge selling pressure here and it’s hard for the market to break this level.
STEEM/USDT daily time frame chart
This is Steem/USDT chart on daily time frame. Here the major support and resistance levels have been drawn. If we talk about current market situation, Steem is on it’s major support of 0.1485. 0.1737 is our near resistance level, then 0.32 is the next and 0.38 is our final resistance level.
Chart Patterns
Chart patterns are randomly formed by market price movement. They also give us a potential direction. It includes, triangles, double top and bottom, head and shoulder pattern, flag patterns and many more. Let’s try to find few them in Steem’s price.
Double Bottom.
This is a bullish pattern, whenever it is made the price goes bullish. We can see a huge price movement in upward direction after the formation of double bottom. Keep in mind double bottom is it’s vice versa.
Head and Shoulders Pattern.
This is a trend reversal pattern, we can expect a bearish move in the market after it is formed. The current chart is it’s practical example.
Let's take some perfect trades Using historical UsingSteem/USDT data, by applying RSI and MACD on One hour time frame. We will see on long position and one short by identifying it's perfect entry point, TP, SL and risk to reward ratio.
STEEM/USDT Long on 1 hour time frame
Here all the indicators give us a bullish signal. RSI is at extremely oversold region (a buying signal) and MCAD is giving us a golden crossover (a buying signal). We took entry for long and our target is hitted. Our entry is at 0.171, take profit at 0.191 and stop loss at 0.1624. this is a 1:2 risk to reward trade and our TP got hitted very easily.
STEEM/USDT short on 1 hour time frame
Here all the indicators are bearish. RSI is at extremely overbought region (sell signal) and MCAD is giving us a death cross (sell signal). Here we have one more confirmation for short that we are at resistance level. Our entry point is at 0.1766, TP at 0.1618 and SL at 0.1809. This is a 1:3 risk to reward ratio trade and TP is hitted.
These are the practical examples from STEEM/USDT historical chart. Here is an overview how we can use these indicators in combination. If RSI is oversold and MCAD is giving us a golden crossover, go for buy, and if RSI is at overbought region and MCAD is giving a death crossover go for sell.
Chart patterns are playing crucial role in technical analysis. It gives market direction to traders and they trade based on it. Some patterns give us the confirmation for the reversal, while other give us the confirmation for the continuation. Let’s explain these three mostly used chart patterns one by one.
Triangles (Continuation Patterns)
These are the continuation patterns and are formed in a consolidation or ranging zone indicating a possible breakout. Generally we have three types of triangles.
Ascending Triangle: A pattern which shows bullish indication. It has a higher lows and a resistance level. If resistance break in upside a bullish market is confirmed.
Descending Triangle: A bearish pattern. It has lower lows and a support level. When the support break in downward direction, a bearish move in the market is confirmed.
Symmetrical Triangle: This is a neutral pattern, whichever sides the market break it will move that direction.
Triangle on STEEM/USDT with perfect entry, TP and SL.
This is Steem 15 minutes time frame, an ascending triangle with perfect entry, stoploss and take profit. It has given break through in upward direction. Our entry is at 0.1827, SL at 0.1801 and TP at 0.1882. This is a 1:2 RR trade. The TP is hitted.
Double Tops (Reversal Pattern)
This is a bearish reversal pattern, which reverse the uptrend. Their are two peaks near the same level and a neck which act as a support, if it breaks that neckline we can go for short position. Let me show it on STEEM chart.
Double top on STEEM/USDT chart.
This is a double top reversal pattern. Our entry point is 0.2763, SL is 0.3611 (above second top) and TP is 0.1737. This is almost 1:1 RR trade and tp is hitted too.
Head and Shoulders (Reversal Pattern)
This is also a reversal pattern which signals a bearish move. It consists of three peaks:
Left shoulder: price goes up and then down.
Head: A higher peak between two shoulders.
Right shoulder: Peak at right side lower than head and somehow equal to left shoulder.
Neck line: This is the support line and it connects the dips. If it is broken a bearish trend is confirmed.
Head and shoulder pattern on STEEM/USDT chart.
This is STEEM/USDT chart on 4 hours time frame. We have a perfect head and shoulder pattern here with us. Our entry point is 0.333, SL is at 0.3811 and TP is 0.2838. This is a 1:1 RR trade, and our TP is hitted too.
We have some best momentum and volatility measuring indicators which could be used to make strategies according to different market situations. The help us maximizing gain and minimizing loss. Let’s me mention some of them here.
Some famous indicators
Exponential Moving Averages (EMA 20, EMA 50): It helps in identification of both short and mid term trends.
Relative Strength Index (RSI 14): It helps in identification of overbought (sell signal) and oversold (buy signal) region.
Bollinger Bands (20, 2): It is used to measure volatility and potential breakout points in the market.
MACD (12, 26, 9): It gives the confirmation of trend direction and momentum.
Volume Profile: It specifically helps in finding liquidity and key levels (support and resistance).
Entry and Exit strategy using these indicators in combination
Entry Criteria
RSI should be in oversold region. We need a golden crossover of EMA. It should touch the lower band, MCAD histogram should turns positive and volume profile should give more volume at that place.
Exit Criteria
RSI should be in overbought region. We need a death crossover of EMA. It should touch the upper band, MCAD histogram should turns negative and volume profile should give less volume at that place.
We can use these indicators with the following strategies no matter whatever the market conditions are. It can give best results in different market conditions, such as breakouts, consolidations, or reversals.
Technical analysis always plays a crucial role in a trader life. Those who master it well never comes up with potential loses. Technical analysis works on probabilities and no one knows hundred percent where the market will move. Let’s share a recent BTC scenario and explain how technical analysis predicts a dip in the market.
Bitcoin chart on daily time frame.
This is BTC’s chart on daily time frame. It is making a double top, which is a reversal pattern, indicating market will get reverse from here. There was extreme hype of BTC till February, and everyone was expecting a bullrun is about to be started.
Those who picked the double top pattern would be safe now, as we know it’s a reversal pattern. The same thing happened back at 2021, when Bitcoin made a double top pattern at $67k level. We have seen a huge decline in BTC prices, it got massively crashed.
We had a strong support of $90k which was many times attempted by to be broken, but it showed strong rejection from here and price went up. Few days ago price broke it down it could be the best entry zone for us for short position, as it was the neck or support line of our double top pattern too. We have multiple confirmation of short trade.
This is how technical analysis save you before any market move, and no matter what the market condition is you will be at profit.
Application to Future Strategies:
- Use multiple indicators for more confirmation.
- Must pay attention to market sentiments.
- Analyse volume and price action properly.
- Diversification is the best option.
- Go with proper risk management.
- Must keep stop loss, which will help you safe from liquidation.
This was all about my participation. I would like to invite my friends @drhira, @dequeen, @m-fdo to share their participation. Best of luck to all participants.
all screenshot from tradingview app