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Greetings to you all crypto enthusiasts, on my post today, I will be giving out a report on how to identify the psychology-of-trends-cycle.
After the article, we get to have an understanding of the market phases and how to carry on a successful trade with it. The questions asked by @reminiscence01 are answered in the following order below.
The Dow theory is the understanding of market phases which believes that the market is always trending, whether the market is in an uptrend or a downtrend.
The Dow theory believes that supply and demand always control the market, the Dow theory believes when the market is bullish, we get to witness more indices of value than the former one, and the same also goes for a bearish market. The Dow theory accustomed its theory with the market volume,
The Dow Theory also believes the market to always be in the two-phase, where it says either the market is accumulating or distributing when all of this is understandable in the market, traders obtain to have a clear idea of what the market is going through and carry out appropriate trading management.
Is Dow Jones Theory Important in technical analysis: - Yes, I believe Dow Theory is important in technical analysis, the theory helps to understand that there will always be a market trend, or if not, the market is ranging, where we get to see a consolidating trend when dow theory is properly understood, traders get to know that one way or the other the market is always up to something, knowing this tends to put traders in a perfect position to understand the trend analysis.
The Accumulation and distribution phase is the psychological effect of the market, the accumulation phase is the period at which people starts buying for future purpose, in this phase, we get to see buyers in the market more.
At that point, people tend to be buying to save, while at the distribution phase, those who bought for saving previously are now ready to sell which in that case, every one of them cashes out their returns as long as they have made their profits, the distribution phase is referred to the phase at which those who bought previously are now selling.
Accumulating Phase - At the accumulation phase, more investors are opening a buy position whereby keeping the market to move in a higher trend, we notice the large volume of the candle which is said to be the strong hands market movement when the strong investors cashed out their profits, the market tends to reaccumulate whereby the market also keeps the uptrend movement till it gets to the distribution phase.
Distribution Phase: - The Distribution phase is known as the Panic phase, is the phase where those investors who bought at the accumulations are ready to sell, the phase tends to bring a reversal to the previous trend, as big investors cash out there investment tends t bring a large volume of breaking the markets low, in this case, they tend to open a big sell position.
During the distribution phase, when we witness a situation where the price slows from falling a bit and tries to retrace, that position is known as the redistributing, which at this point, traders open more selling position pending till the market start falling all over again.
According to the Dow Theory explained earlier, the crypto market is always in a trend either a bearish or bullish market, if none of these two is seen, then the market is said to be in a ranging market. The bullish trend is when the market is depicting higher indices than the former movement, while the bearish market is when the market is depicting lower indices than the previous lows, the sideways market bounces between the support and resistance.
Bullish phase of the market - A bullish movement can be identifies when we witness the market to be displaying more higher highs than the previous , in that case, the market can be said to be rising as there are more buyers at that moment.this means there are more demands in the assets at that moment.
Bearish Phase - A bearish market is identifies when we witness more lower lows in the market , in this case, the next low tends to be higher than the previous lows, which signifies there are more people selling the assets at that instance, there are said to be more supply in the market then.
Ranging Phase: - The ranging market is identified at the accumulation or distribution level,in this case, the market just finish a trend and about consolidating for a new movement, during the ranging phase, market bounces between the support and resistance for a while before eventually a breakout.
The Volume indicator helps in understanding the certainty of the amount of buyers or sellers in the market, when the volume indicator is included on a chart, we could easily identify the level at which an assets is being purchase or sold, in a strong movement, we get to see high candles of volume bars, while in a ranging market,we get to see a low volume as the market is been dragged between buyers and sellers then.
Bullish Trend: - In a bullish trend, we saw a retracement of high volume , which thus depicts green bars, in this case, the volume tend to be the highest bar we saw at that particular moment,this signifies a life back in the assets as it has broken it ranging phase to a new trend.
Bearish trend: - In a bearish trend, the red bar tends to be higher than what we have ben seeing from earlier before the market breakout, when this is confirmed on a trend , signifies a beaish movement and proves there are more sellers in the market at that moment.
Ranging PHASE: - in a range phase, the market bounces between the support and the resistance level , in this case, there are no higher demand or higher supply , the market tends to have low volume then as the big investor have not yet move the market to a new phase.
The trade criteria for the three market is different,as the case of a bullish market is different from the case of bearish or ranging market.
Bullish Trend - Ensure that the market is depicting higher highs, which confirms that the market is in bullish and travelling in an uptrend.
Wait for the price to retrace to the original trend, then we place the entry at that point.
Set your risk reward ratio, the best management to get buy in that position is 1:1, or 1:2.
The set up can be seen from the chart below.
Bearish Trend - Ensure that the market is depicting lower lows, which confirms that the market is in bearish and travelling in a downtrend.
Wait for the price to retrace to the original trend, then place the entry at that point the market start falling again.
Set the risk reward ratio, the best management to get by in that position is 1:1, or 1:2.
The set up can be seen from the chart below.
Ranging Phase - Trading in a ranging market sometimes proves to be risky as the market is consolidating and without a trend , which why anything can happen and a break can occur in any moment.but with proper management, traders can get by just fine in a ranging market.
Ensure that the market just breaks from a trend, whereby the market is bouncing between the support and resistance level.
Look at the volume of the market , if the volume is very low, then the range is safe.
Place an entry to buy at the support level , and set the TP at the resistance level, with the stop loss 2 or 3 candles below the support zone.
- Place an entry to sell at the resistance level, the take profit at the support level, and the stop loss at 2 or 3 candles below the resistance zone.
BUY POSITION - To execute a buy position, I made sure the market is in an uptrend position as the market was depicting higher highs and higher lows.
I vividly wait for the market to retrace, then the moment returns to the original trend, I made decsison to buy MBLUSD at the price of $0.020500.
My risk reward ratio are in 1:5 , with the stop loss at $0.015967, and the take profit at $0.026841
Trade Proof From PaperTrading.
SELL POSITION:- - To execute a sell position, I was sure that the market is in downtrend status, as the market was depicting lower highs and lows lows.
- I wait for the market to retrace , then the momentit returns to the original trend, I made decsison to sell FTMBTC at the price of 0.00002829BTC.
- My risk reward ratio are in 1:1 , with the stop loss at 0.00003236BTC, and the take profit at 0.00002462BTC.
Prof of the running transaction on papertrading
On the above writeup, I have been able to explain how to trade the market psychology, I have also explained the trading criteria that are supposed to be met with before considering an entry.
The buy position to buy is the accumulation phase where at that point investors are buying the assets , as a small retailer, one can make there entry with a proper managememt as well,where we sell at the distribution level where it is the moment investors are ready to cash out there profits.
CC: @reminiscence01
Hello @emmanuel-malume , I’m glad you participated in the 4th week Season 6 at the Steemit Crypto Academy. Your grades in this Homework task are as follows:
Observations:
Price is not retracing to the original direction. Price is retracing to the opposite direction.
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