Steemit Crypto Academy Contest / S15W6 - Chartist analysis

Edited using Pixellab App

INTRODUCTION

I am assuming we all love going to the beach right? And it doesn't make sense to be seaside during the rain because of the cold, isn't it? So imagine you're planning a beach trip, and you want to know when is the best time to go based on the weather because you don't want to get caught in the rain, so you start looking at a weather forecast chart that shows the temperature over time.

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Now, instead of just looking at the current temperature, you decide to analyze the chart to see if there are any patterns or trends previously, and then you notice that over the past few weeks, the temperature has been gradually increasing. Hence, based on this pattern, you predict that the temperature will continue to rise in the coming days.

Therefore, by using this chartist analysis, you can make an informed decision about when to plan your beach trip. You might decide to go in a few days when the temperature is expected to be even warmer.

This is also relatable to our chartist analysis in the finance market which involves studying patterns and trends in previous price charts to make predictions about future price movements.

Just like looking into the weather forecast chart to make decisions about your beach trip, by analyzing historical price data, traders and analysts can try to predict potential market trends and make more informed investment decisions.

Let us look into what Chartist Analysis is all about as required of us in the contest, shall we?

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What is chartist analysis? And the importance of chart patterns.

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Chartist analysis, also known as technical analysis, is a way of studying and predicting the future movements of financial markets, like the cryptocurrency market, by analyzing previous charts and patterns.

Instead of focusing on the underlying factors that affect the market, chartists believe that historical price and volume data can also provide insights into future price movements. Therefore, they look for patterns, trends, and key levels of support and resistance on various charts to make predictions about where the market might go next. It is like trying to find clues in the past to help predict what might happen in the future.

Chartists often use tools like Fibonacci retracement, which helps identify potential levels where prices might reverse or continue their trends. It's not a foolproof method, but it's one of the ways traders try to make sense of the market and make informed decisions.

Other analysis tools a Chartist uses to help analyze market trends and make trading decisions include;

Moving Averages:
These indicators smooth out price data over a specified period and help identify trends. The most common types are the simple moving average (SMA) and the exponential moving average (EMA). They can be used to determine support and resistance levels or to generate buy/sell signals when the price crosses above or below the moving average line.

Relative Strength Index (RSI):
RSI is a momentum oscillator that measures the speed and change of price movements. It ranges from 0 to 100 and is used to identify overbought and oversold conditions in the market. Traders look for RSI values above 70 for overbought signals and below 30 for oversold signals.

MACD (Moving Average Convergence Divergence):
MACD is a trend-following momentum indicator that shows the relationship between two moving averages of an asset's price. It consists of a MACD line and a signal line. When the MACD line crosses above the signal line, it's considered a bullish signal, and when it crosses below, it's seen as bearish.

Bollinger Bands:
Bollinger Bands consist of a simple moving average and two standard deviation lines placed above and below it. They help identify volatility and potential price reversals. When the price touches the upper band, it may be overbought, and when it touches the lower band, it may be oversold.

Stochastic Oscillator:
This indicator compares the closing price of an asset to its price range over a specific period. It helps identify potential turning points in the market. Traders look for overbought and oversold conditions based on the position of the stochastic lines.

These are just but a few examples of indicators a Chartists uses along with chart patterns to gain insights into market trends and make better-informed trading decisions.

Now let us look into some of the common charts patterns a Chartist look for and they include;

Trend lines:
These are lines drawn on a chart to connect the highs or lows of price movements. They help identify the direction of the trend, whether it's upward (bullish) or downward (bearish).

Support and resistance levels:
These are specific price levels where the price tends to find support (stops going down) or resistance (stops going up). Traders pay attention to these levels as they can indicate potential turning points in the market.

Head and Shoulders:
This pattern looks like a head with two shoulders. It typically indicates a reversal from an uptrend to a downtrend. Traders watch for the neckline to be broken as a confirmation of the pattern.

Double Top and Double Bottom:
These patterns occur when the price reaches a certain level twice before reversing. A double top signals a potential trend reversal from bullish to bearish, while a double bottom suggests a reversal from bearish to bullish.

Ascending and Descending Triangles:
Ascending triangles have a flat top and an upward-sloping bottom, indicating a potential breakout to the upside. Descending triangles have a flat bottom and a downward-sloping top, suggesting a potential breakout to the downside.

Cup and Handle:
This pattern resembles a cup with a handle. It's considered a bullish continuation pattern, indicating that the price may continue its upward trend after a brief consolidation.

These are some chart patterns, which traders use along with other technical indicators, to make informed decisions about buying or selling assets.

IMPORTANCE OF CHART PATTERNS

Chart patterns are like little puzzle pieces that can help us understand what might happen next in the market.

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They are likened to little clues that the market leaves behind (a trail to follow by investors and traders), as these patterns can give us hints about what might happen in the market next, as they are formed by the previous price movements of an asset on a chart, which can help us predict the future price movements of the asset.

Therefore, chart patterns are important because they provide us with valuable information about the psychology of traders in the market (I.e., market and traders sentiment). These show us patterns that tend to repeat themselves over time, and by recognizing these patterns, we can make better-informed trading decisions.

Hence, by recognizing and understanding the various chart patterns, traders can predict potential breakouts, reversals, or continuations in the market. Therefore using them to set market entry and exit points for trades, manage risk, and increase our chances of making profitable trades.

Also, we should have it in our minds that as helpful as Chart patterns predicting price movements, they're not 100% reliable, because chart patterns provide valuable insights into potential market directions using historical price data and human behaviour.

Hence, the reliability of chart patterns can said to be depend on various factors, such as the timeframe being analyzed, the market conditions, and the strength of the pattern itself.

Again, the cryptocurrency or financial market is influenced by numerous factors, which include economic events, news, and market sentiment, but these external factors are not taken into account by the charts and can sometimes override or invalidate chart patterns.

Therefore, while chart patterns can be a valuable tool, it is good to remember that chart patterns are not foolproof as the market can be unpredictable, and patterns don't always play out as expected, hence it is always best to use these chart patterns in combination with other technical indicators and risk management strategies to make well-informed trading decisions.

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What is the shoulder head shoulder pattern? Show screenshots using the BTC/USDT pair. You can use another cryptocurrency pair if you wish

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The Shoulder-Head-Shoulder (SHS) chart pattern I earlier mentioned is a common chart pattern used by many traders and the name Shoulder-Head Shoulder is a fancy name because the pattern that looks like a person's head with two shoulders, i.e., having three peaks in a continuous fashion with the middle peak (the Head) being higher than the other two peaks on the left and the right (the shoulders).

Here, first of all, the price goes up and forms a peak (Left Shoulder), before going down a bit, then, it goes back up, this time higher than the last peak (Left Shoulder) and forms a higher peak (The Head) before going down a bit, then goes up again (Right Shoulder), but not as high as the middle/previous peak (The Head). This is shown on the screenshot provided below 👇.

Screenshot taken from Tradingview

Above Chart Details

Pairs	BTC/USDT
Timeframe	1 Day

When you connect the lows (throughs) between the left and right shoulders I.e, the two lows reached after the first shoulder and the head, you get a line called the NECKLINE, and when the price is below or breaks below this neckline, it suggests that the sellers are taking control and the price might start experiencing a downward trend.

Note: These low points (valleys) are not always on the same level, hence the neckline can be ascending, descending or more rarely, horizontal. From the screenshot above you can clearly see that our neck line is ascending.

Generally, when this pattern is observed in a chart, it usually means that the price of the asset is about to change direction. It's like a sign that the buyers might be losing their power and the sellers might take over.

But then, it is important to also note that the shoulder-head-shoulder pattern is not always a perfect match. That is, sometimes the shoulders might not be at the same level, or the head might be higher than the shoulders. As you can also see from the screenshot above how the Head is not higher than the Right neck.

But as long as you see a general shape resembling a head with two shoulders, I.e., Three successive peaks, it is worth paying attention to.

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Explain the formation of the inverse head-shoulders pattern. Show screenshots of a cryptocurrency pair that displays this pattern

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This is just the mere opposite of the Shoulder-Head-Shoulder (SHS) chart pattern as the name implies. That is, the inverse head and shoulders pattern is the upside-down version of the head shoulders pattern, so instead of peaks, we are looking at troughs or valleys.

Hence, the price goes down and forms a low point (left shoulder). Then after experiencing a reversal upwards it goes down even lower and forms a lower low point (the head). After that, it goes up a bit, then goes down again (right shoulder), but this time not as low as the lower low (the head).

Screenshot taken from Tradingview

Above Chart Details

Pairs	BTC/USDT
Timeframe	1 Day

Again, connecting the highs (peaks) between the shoulders, I.e., the two highest highs reached after the first shoulder and the head gives us the NECKLINE, and when the price breaks above this neckline, it suggests that the buyers are taking control of the market and the price might start going up.

Also, know that these high points (peaks) are not always on the same level, hence the neckline can be ascending, descending or more rarely, horizontal.

Again, just like with the regular head and shoulders pattern, the inverse head and shoulders pattern might not also be a perfect match. That is, the shoulders might not be at the same level, or the head might not be lower than the shoulders but as long as there are three successive troughs or valleys, it needs paying attention to.

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For the technical analysis of the Steem, would you use chart patterns? Explain your answer.

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Chart patterns are commonly used tools in technical analysis, and they can be quite helpful when analyzing the price movements of cryptocurrencies like Steem.

Chart patterns, such as the ones we have discussed earlier like the head and shoulders pattern, can provide insights into potential price trends and reversals as they help traders and analysts identify key levels of support and resistance, as well as possible entry and exit points for trades.

Therefore, by studying chart patterns, I can look for recurring shapes and formations that may indicate future price movements as these patterns can give me a sense of whether the price of Steem might be heading up, down, or sideways.

And yes, chart patterns are not foolproof and therefore I will have to use them in conjunction with other analysis tools and indicators as these patterns are merely a piece of the puzzle in understanding the market dynamics.

So, to answer your question, it is an absolute yes for me, as chart patterns can also be a useful tool for me when I am conducting a technical analysis on the Steem cryptocurrency to help me make more informed decisions based on historical price behaviour.

CONCLUSION

In conclusion, chartist analysis is a way of predicting the future price movements of an asset by studying patterns and trends in price charts. By analyzing this historical price data, traders and investors can try to identify recurring patterns and make better-informed decisions about buying or selling the asset. But then, while chart patterns can provide valuable insights, it's important to remember that they are not foolproof and should be used in conjunction with other analysis tools.

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I wish to invite @starrchris, @ngoenyi, @chants and @hamzayousafzai.

Thank You for your Time

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NOTE: Always have a smile on your face, as you are never fully dressed without one.