Crypto Trading Strategy With Triangular Moving Average [Trima] Indicator- Crypto Academy/ S6w4- Homework post for @fredquantum

Hello Crypto lovers,

I am happy to welcome you to my assignment post for the week being week4 of Season6.

This week, we shall be learning from Prof @fredquantum and we shall be learning on the use of Triangular Moving Average [TRIMA] Indicator.
Stay tuned!

The triangular moving average ( Trima) indicator can be explained to be a doubled smoothened SMA that helps in the smoothening of data, inorder to produce clear trading signals to traders during periods of volatility.

It can also be called the SMA of an SMA indicator, this means that it is a doubled average simple moving average.

Trima plays a big role in filtering out noise from the market and detecting the trend of the market.

Like a simple moving average, TRIMA indicator helps to detect trend reversals, and it does this by the crossovers that occurs between a fast and a slow moving average.

TRIMA indicator signals a bullish trend when the fast moving average crosses above the slow moving, thus indicating a good buy entry signal.

And this occurrence shows that the bulls are in control of the market and that the pressure of demand is higher than that of supply.

Whenever the slow moving average is intersected downward by the fast moving average, the TRIMA indicator signals a bearish trend, which implies that the bears are in control of the market and that the pressure of supply is higher than that of demand.
And this in turn signals a good opportunity to place a sell order.

In conclusion, the TRIMA indicator can be explained as follows:

• It is an indicator that is effective for both non-volatile and volatile market as it doesn't react quickly to price volatility

• It is an indicator that is compatible with other indicators

• It is a trend-based indicator that helps to detect trends and trend reversals in the market

To carry out this task of setting up a crypto chart with a TRIMA indicator, I visited a trading platform that support the use of the TRIMA indicator.

• I visited trading view and clicked on indicator icon.

^{SCREENSHOT FROM TRADING VIEW}

• Then I inputed the word "triangular" on the search botton, of which I clicked on the triangular indicator to add it to my chart.

^{SCREENSHOT FROM TRADING VIEW}

• After clicking on the indicator, it was successfully added to the chart.

^{SCREENSHOT FROM TRADING VIEW}

• Then to configure the TRIMA indicator, I clicked on the indicator name as seen above, then I clicked on settings and the below appeared.

^{SCREENSHOT FROM TRADING VIEW}

• From the screenshot below, on the input section, we can change the period of the TRIMA indicator from it's default of 10, to any number of our choice.
  We can also configure it to a longer period.

^{SCREENSHOT FROM TRADING VIEW}

The colour and thickness of the TRIMA indicator can be changed on the style section.

^{SCREENSHOT FROM TRADING VIEW}

As I earlier said, the TRIMA indicator is also known as the simple moving average of a simple moving average, this means that it's calculation involves that of an SMA.

SMA = [ 1st price + 2nd price + 3rd price + 4th price + nth price] / n

Where
nth price = The last price within the period of calculation
n = period of observation applied.

Having gotten the calculation for an SMA,

Trima = SMA of SMA,
Where SMA = Simple moving average

Therefore;
TRIMA = [1st SMA + 2nd SMA + 3rd SMA + 4th SMA + nth SMA]/n.

For example:
Given that the SMA of steem over a period of 5 is given as 150, 160, 170, 210, 300, find the TRIMA value.

TRIMA= 990/5
= 198.

As earlier explained, the TRIMA indicator is a trend based indicator that helps to identify the current and overall trend of the market, and by so doing, it helps give traders insight on when and how to enter the market.

When making use of the TRIMA indicator, it is advisable to use a longer period as it helps to clearly identify the trend of the market.

As we know, an uptrend is a market condition in which the price of the market is constantly increasing, forming higher highs and higher lows, thus confirming the power of the bulls over the bears.

An uptrend can be confirmed by the TRIMA indicator whenever the TRIMA indicator appears to be below the price of the market, that is, the price of the market should be above the TRIMA line.

An uptrend can be further confirmed when the angle of the trima line is facing upward

^{SCREENSHOT FROM TRADING VIEW}

The screenshot above is a crypto chart showing an uptrend being signaled by the trima indicator.

As seen above, the trima line is below the chart and is angled upward, thus confirming the bullish move of the market.

A downtrend is a market condition whereby the bears shows their power over the bulls.

It is a market condition where the price of the market makes series of lower highs and lower lows, thus indicating that there are more sellers than buyers in the market.

The formation of a downtrend also helps to signal a good sell entry position for traders.

A downtrend can be signaled by the trima indicator when the trima line is found above the price of the market, that is, the price of the market should be below the trima line.

A downtrend can further be confirmed when the trima line is angled downward, thus moving in the direction of the price.

^{SCREENSHOT FROM TRADING VIEW}

The screenshot above is a crypto chart showing a downtrend signaled by the trima indicator.

As seen above, the trima line is above the price as it forms consecutive bearish candles.

First, let's understand what a dynamic support and resistance is:

A dynamic support/resistance, unlike an horizontal support/resistance is one that is usually formed only in a trending market, and it is not formed by straight lines.

The dynamic support/resistance is one that is usually observed with the use of indicators.

As already known, the concept of resistance/support zone happens to be the reaction between buyers and sellers, in that, as the price strikes the support/resistance line, it is more likely to be rejected and move in a reverse direction.

A dynamic resistance is usually observed with the trima indicator whenever the price breaks below the trima line.

As the market proceeds in a downtrend and the trima line geta above the chart, the trima line tends to act as a dynamic resistance, in that the price gets rejected once it hits the trima line. It thus indicate a potential selling opportunity.
Consider the chart below

^{SCREENSHOT FROM TRADING VIEW}

As seen above, the trima line acted as a dynamic resistance by bouncing off the price whenever it hits it.

And as confirmed with the above screenshot, the price gets rejected when it hits the trima line.

A dynamic support is actually observed whenever the price breaks above the trima line and then retrace backward to retest the trima line butt fails to break below it.

The trima line acts as a dynamic support only in a bullish market, and in this situation, the price gets rejected whenever it falls to the trima line.

Whenever the price hits the trima line and gets rejected, it shows a good buying opportunity to traders.

^{SCREENSHOT FROM TRADING VIEW}

The screenshot above shows the trima line acting as a dynamic support as it severally rejects the price of the market.

As earlier said, the trima indicator acts as resistance and support only in trending market.

In a consolidating market, the trima line neither acts as a dynamic resistance nor support to the price, but rather, it is seen intertwining with the price.

In a consolidating market, the trima line is seen moving upward and downward haphazardly, without a specified direction.
The screenshot below explaina better

^{SCREENSHOT FROM TRADING VIEW}

As seen above, we can see that the market is in a consolidating phase.
And the trima line is seen moving randomly without a specific direction nor trend.

A crossover of the trima indicator is a situation that occurs when two trima line [ fast and slow] crosses each other.
Ideally, the fast trima line crosses the slow trima line.

The crossover of the trima indicator, just as that of the moving average, helps to indicate buy and sell signals of the market.

Inorder to illustrate a buy signal using 2 trima indicators, I will be making use of a short trima with a length of 20, displayed with a green color and a long trima with a length of 60, displayed in red colour.

For a but signal to be confirmed, the trima with a smaller length has to cross above the trima with a longer length.
Whenever this happens, a buy order can be placed in the market.

The below screenshot illustrates this

^{SCREENSHOT FROM TRADING VIEW}

As seen above, the trima line with a short length of 20 crossed above the trima with a longer length, this indicating a buy signal.

By following the price action after the crossover, it is observed that it went on a bullish move, forming higher highs and higher lows.

For a sell signal to be observed using the technique of trima crossover, the low period trima line ought to cross below the trima line with a longer length.

When this happens, it indicates that the bears are in control of the market, and that the pressure of supply is greater than that of demand.
Consider the chart below.

^{SCREENSHOT FROM TRADING VIEW}

The chart below is the pair DOTUSD, and as seen above, the 20 length trima line crosses below the 60 length trima line.

And the price action after the crossover shows the formation of lower lows and lower highs in the market, which indicates that sellers are more than buyers.

As I have always believed, it is very risky to use an indicator as a standalone tool for technical analysis, as the market is very volatile and the trima indicator is prone to false signals.

Inorder to increase the success rate of an indicator, it is advisable to combine it with other indicators or other technical analysis tool.

For the sake of this task, I will be combining the trima indicator with an RSI indicator.

The RSI can be explained to be a momentum based indicator which helps to indicate overbought and oversold regions in the market.

Whenever the RSI indicates an overbought region of 70, it is usually seen as a good bearish trend reversal signal and when the RSI shows an oversold region of 30, it is signaling a bullish trend reversal.

• The first thing to do as a trader is to ensure that the TRIMA and the RSI has been successfully added and configured if necessary

• Since we are searching for a bullish trend reversal, then the market must be in a bearish trend

• Then after detecting a downtrend on the chart, a trader should watch and wait for the RSI to detect an oversold region, which is signaling a bullish trend reversal move.

• Then, after the RSI has signaled an oversold region, this should be confirmed with a crossover of the trima indicator.
  The short period indicator should cross above the long period trima indicator.

• When the crossover has occurred, then a buy signal has been confirmed.
  A trader can then proceed to enter a buy order position and set his stoploss below the support line and the take profit can be set in a way to get a risk reward ratio of 1:2.

^{SCREENSHOT FROM TRADING VIEW}

As seen above, the market was in a downtrend, then the RSI signalled an oversold region, then later, the trima indicator confirmed the signal through the formation of a bullish crossover.

• Inorder to trade a bearish trend reversal, a trader has to ensure that the TRIMA and the RSI indicator has been successfully added and configured if necessary.

• Since we are searching for a bearish trend reversal, the market ought to be in an uptrend.

• Then after detecting an uptrend on the chart, a trader should patiently wait for the RSI to be in an overbought region.

• Then, after the RSI has signaled an overbought region, the sell signal should be confirmed with the trima indicator by the formation of a bearish crossover.

• When the crossover has been successfully formed, a sell signal has been confirmed, then a trader can confidently enter a sell order and place his stoploss above the resistance line and the take profit in a way that the risk reward ratio will be 1:2.

^{SCREENSHOT FROM TRADING VIEW}

As seen above from the screenshot, the market was in an uptrend, then the RSI signaled an overbought region, and this was confirmed with the formation of a cross over.

Another very effective momentum indicator that can be used to confirm the trima crossover is the stochastic oscillator.

The stochastic indicator is a momentum based indicator that helps to show overbought and oversold region of the market.

When the stochastic indicator shows an overbought region, it is usually a bearish trend reversal signal and when it signals an oversold region, it is a good buy entry position as the market is expected to proceed on a bullish move.

The stochastic indicator is said to be in an overbought region when the price gets to the region of 80 and it is said to be in an oversold region when the price gets to a region of 20.

• The stochastic indicator alongside the trima indicator should be added to the chart.

• Since we are searching for a bearish trend reversal signal, an uptrend should firstly be confirmed

• The stochastic indicator should show that the market is in an overbought region which should be accompanied with a bearish trima crossover.

• After these has been confirmed, a trader can then proceed to place a sell order.

^{SCREENSHOT FROM TRADING VIEW}

The above screenshot shows the formation of a bearish trend reversal signal.

As seen above, the stochastic indicator signaled an oversold region, which was later accompanied by a bearish crossover.

• The stochastic indicator alongside the trima indicator should be added to the chart.

• Since we are searching for a bullish trend reversal signal, an downtrend should firstly be confirmed

• The stochastic indicator should show that the market is in an oversold region which should be accompanied with a bullish trima crossover.

• After these has been confirmed, a trader can then proceed to place a buy order.

^{SCREENSHOT FROM TRADING VIEW}

Inorder to perform this trade, I will be carrying out my analysis on trading view and the real trade on binance exchange.

^{SCREENSHOT FROM TRADING VIEW}

I visited trading view, and since I was in search of a sell signal, I watched out for a bearish trend.

I found a bullish trend which was characterised by higher highs and higher lows, I watched and discovered that the buyers began to loose their buying power and the market failed to form new highs, instead it began to form bearish candles.

I then searched for signals to enter my trade.
As I watched, I noticed that the short length trima crossed below the higher period trima length, and this is a good sell position entry.

I then proceeded to check the RSI indicator for a confirmation signal.

As I checked, I noticed that the RSI had previously indicated 2 overbought region which was denied by the market.
So I took this two overbought region and the bearish crossover as a reason to enter a sell trade.

I placed a sell order and set my stoploss above the resistance level of my chart and I placed my take profit In a way that I got a risk reward ratio of 1:2.
Below is the proof of my position

^{SCREENSHOT FROM BINANCE}

Inorder to carry out this task, I did my analysis on trading view and perform the trade on mt4.

^{SCREENSHOT FROM TRADING VIEW}

I chose the pair BNBUSD on a 5min time frame, and since I was looking for a buy signal, I watched out for a bullish trend.

As I watched closely, I noticed that the market was in an uptrend, complying with the buy signal given by the RSI indicator.

And I could not enter the market using an indicator as a standalone tool. I then waited for the formation of a bullish crossover inorder for me to enter the trade.

After the formation of several bullish candles, I then noticed the short period trima line crossing above the long period trima line.
With that, I took it as a confirmation to enter a buy order.

The RSI confirmed a buy order by being in an oversold region, and the trima indicator confirmed a buy order by the formation of a bullish crossover.

I then went ahead to place a buy order, and I placed my stop loss below the support level and my take profit was placed in a way that I got a risk reward ratio of 1:2.

Below is the proof of my placed position

^{Screenshot from mt4}

• The TRIMA indicator is an indicator that is easily read and understood

• The trima indicator is highly compatible with other technical analysis tool and can be used effectively on a multi time frame.

• The trima is a very useful trend based indicator as it helps in the identification of trend and trend reversals.

• The trima indicator helps to filter out noise from the market

• When a long and short period trima indicator is used, it's crossover gives effective buy and sell signals

• The trima indicator serves as dynamic support and resistance to the price.

The trima indicator has has a slow reaction to price changes.
It usually give signals after the market has began it's movement.

• Trima indicator cannot be used as a standalone tool as it is affected by the volatility of the market.

• Trima indicator works effectively only on trending market, whenever the market is in a consolidating phase, the trima indicator gives false signals

The Trima Indicator is another very effective Indicator used in technical analysis.

It helps bro identify bullish and bearish trend, it also helps bro identify trend reversal, and is most effective when used with other Indicators.

The crossover of the Trima Indicator helps to detect valid buying and selling point.

I appreciate Prof @fredquantum for this interesting lecture on Trima Indicator.
I look forward to learning from you again.