Hey guys,
I welcome you'll to the 3rd week of the SteemitCryptoAcademy course by Professor @nane15. In this course, I will run a comprehensive review on Crypto Trading by Identifying Support and Resistance.
All images used in this post unless otherwise stated are not mine and were extracted from tradingview, for the purpose of this assignment.
Question 1
Explain your understanding of charts, candlesticks, and time frames. (Use your own words and put screenshots).
There are different types of charts, but there is a specific chart that we are looking at in view of this context. Examples of those charts are; Bar charts, Histograms, Pie charts, line charts, and so many others. In this context, the chart we are referring to is the charts used to make analyses of a particular cryptocurrency or more, for the purpose of analyzing the data, working on the timeframe, understanding the trend or market pattern, and making a trade.
Now, Chart in relation to this context (Cryptocurrency) is known as the representation of data i.e. the market price, market trend, market value, the time frame, and so on, in a graphical form, that which can be seen, can be read, and can be understood for the purpose of making a trade and understanding the market pattern to be able to know the analysis. The charts are actually patterns that were formed based on the last movement in the market, of digital currencies like Ethereum, Bitcoin, Dodge, and so on, so as to spot investment opportunities. Chart patterns are the root and the foundational basis that give a full definition to technical analysis, as the technical analysis itself deals with the chart, the candles, and some other constituents, but to really understand technical analysis, you need to be able to read the chart well.
Research has shown that reading charts have existed long before cryptocurrency came into existence and it has been in existence for as long as trading has existed also. There is no way a good trade would be made and the chart will not be consulted, in the chart, the pattern is discovered and known, price trend, market price, the time frame, and so on.
The Chart is actually made of a lot of constituents that enable the reading of those charts and helps to understand the market pattern and the market analysis. Below are the listed constituents of the chart.
Candlestick
Bar chart
Line chart
Timeframe
Indicators
Candlestick
Candlestick is a significant and important constituent in every chart because it defines the movement of the market, and with that, the analysis can be made. It shows the past market pattern and price trend and helps to identify and discover the future price trend and understand the kind of pattern the market is to make a trade effectively.
Candlestick is a kind of price chart or market chart used in the technical analysis that shows or indicates the low, high, price trend, market pattern, open, and the closing price of a secured market for a limited period of time. It is important to note that the market, chart work with time.
The above image clearly indicates the chart in which majorly the candlesticks are shown and the market pattern is seen because the market pattern is discovered by the past events that happens in the market.
Bar chart
This chart is also significant and important because, through the bar chart, the market price, the pattern, the price trend, the opening and the closing position can be known, because it is substituted with a candlestick or line chart. It is a common tool that is used by traders who have mastered its usefulness because, without this or its subsidiaries, the market pattern can not be known.
The above image is a typical representation of a bar chart, it is as useful as learning to trade the market because if not for the bar chart and its other contemporaries, the market pattern will not be known, and therefore, the market might not even exist because they are the backbone of the market.
Line Chart
It all has to do with graphical representation, what is being represented on the graph or on the chart is actually a real asset or money and profit, but is symbolized by the chart. So, a line chart connects assets history, price trend, market pattern, and so on together on a continuous line.
The image above is a typical representation of a line chart, which helps to discover the price trend, market pattern through the history of the market. It is very useful and essential in performing trades in the market also.
Time Frame
The time frame connotes the period of time an action takes place or occurs. In cryptocurrency or forest or any other stock market chart, a time frame is necessary, as it helps to discover the period of time it will take before a candle, bar, or line is formed, and through the time frame, the kind of trader is also known. There are day traders, scalpers, swing traders, and position traders.
It is shown that the Cryptocurrency market is open 24 hours per day and 7 days of the week, while Forex currency pairs are opened 24 hours and 5 days of the week, and the binary trade is opened for 24 hours and 7 days of the week. So, there is actually no best time to trade because the market pattern can change any time, but at times there are exceptions to this.
The analysis is done in time, so the time frame is very important, for an analyst who wants to analyze a day, a shorter time frame would be needed and employed.
The image below actually shows the analysis of a day or probably days because it is in a shorter time frame, which is in 5 minutes.
If an analysis of a week or weeks is to be done, a larger time frame would be needed. The image below shows that the analysis is in a week or more, because of the higher timeframe employed which is 1 day.
The image below indicates the market pattern in a week as the time frame is in a day and the 7 candles below indicate a week market. It means that for a whole week the market move in the upward trend as it is just that the buying candles that are showing up, but there’s a little reversal on the third day and on the fourth day, the market returns to the upward trend, and it basically means that all through the week the market was in the sell order.
Question 2
Explains how to identify support and resistance levels. (Give examples with at least 2 different graphs)
It must be noted and taken into consideration because there is no way the important levels would be identified when they had not been mastered. The importance of mastering the chart is so that when any market pattern is seen, it can easily be identified.
In technical analysis, there is two major discussions, and it is without argument, Support, and resistance level. The Support and Resistance level are terminology used by traders on their way to analyze price trends or the market pattern creating a blockage from allowing the price of an asset which could be a cryptocurrency asset or a Forex asset from going high which means uptrend, or going low which means downtrend.
To identify support and resistance levels, the market pattern that shows support and resistance level is called ranging market. In a ranging market, the candles are formed in such a way that they bounce up, and also they bounce down, and that pattern might continue to show bouncing up and down like three or more times, and when that market pattern is shown, that is a typical example of a Ranging market.
The image above is a typical representation of a ranging market which shows the support and the resistance. So, Support is shown in the market as the candles that bounced up, while resistance is shown in the market as the candles that bounced down.
Support
Support is known and defined as the point in a market price in which due to the concentrated rate of buying or probably the demand rate causes a temporary pause or at times, it could be a permanent pause to a downtrend. Support is the upper point in a ranging market, as a ranging market forms a bouncing movement like a zig-zag facing the down. When a market is in a downtrend, which means the market pattern is currently selling, but immediately the market price into the buying interest starts increasing the market would be forced to start moving from a downtrend into an uptrend because the buying interests has increased and moved more than the selling interest, so a tweak is caused in the market, and in that way a support line begins.
Support level has a great influence in pushing the price upward, hence preventing the market price from moving downward.
Resistance
On the other hand, resistance is known as the point in the market with which a permanent or temporary pause happens in the uptrend. When the market is buying and a concentrated supply comes in, the rate for selling will increase, hence it will cause the market to start to tweak away from selling into buying, and there is a blockage at that point. Hence, the point with which the blockage happens and the market begins to go down, is known as resistance.
The image above shows the practical and graphical representation of the resistance line and the resistance point. When a resistance level has been broken, which means that the market has moved beyond the blockage, it means that a new Support has been created in the market.
Support level
Resistance level
Question 3
Identifies and flags Fibonacci retracements, round numbers, high volume, and accumulation and distribution zones. (Each one in a different graph.)
Fibonacci retracement, round numbers, high volume, and accumulation and distribution zone are all strategies to discover and read important levels on the price chart and market.
Fibonacci Retracement
A Fibonacci retracement is a well-known tool that is obtained from the Fibonacci sequence. Before the explanation of Fibonacci retracement, let me quickly explain what the Fibonacci sequence means. Fibonacci sequence is a composition of number series in which the continuous or the latter number is a sum or addition of the two preceding numbers, i.e the number that comes before e.g. 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 and so on. How these numbers are derived has been explained in the definition and it is simply by adding 1 to 2 which will give 3 and also adding 2 to 3 which will give 5 and it continues like that, so that is what the Fibonacci sequence means.
Fibonacci retracement can be traced down back to the Fibonacci sequence, which supposes and gives the definition to be the lines drawn horizontally which would specify where the resistance and the support are likely to occur on the chart. Each level has an association or a relation with percentage, because the resistance and the support can be detected through them and so there is a percentage to calculate them or guess them. The levels in the Fibonacci retracement are 23.6%, 38.2%, 61.8% and 78.6% respectively. Also, 50% is recognized and unofficially used.
It is very useful and efficient as it can be drawn between any two price points, like a high and a low. It is now the indicator that will create levels between the points.
For the market in an uptrend, the Fibonacci would be placed on the previous support at point 1 and it would be extended to the nearest high.
For the market in a downtrend, to place the Fibonacci retracement in the downtrend, it would be placed to the nearest resistance level at point 1 and it would be dragged upwards.
Round Numbers
The biggest and the highest traders who are known as whales, are likely or most of the time, they tend to place their order at a rounded number, and literally, the roundest of all numbers is zero. Individually, there are different ways with which we think and the pattern that one like, the other might not like it, but the people and traders actually like to automate tasks, like setting stop loss and take profit, such that when the market is about to take their order into a loss, the automated task, which is stop-loss swill close the market automatically, and also when take profit is set, and the market is moving high when it gets top a particular point that the take profit has been set, the market will close, this is basically aimed at controlling the losses and at times also controlling the profit. The Take profit is tagged by the trader to be TP, while stop loss is tagged to be called SL.
So, it is easier for traders to set their take profit (TP), or stop loss (SL) to a rounded number instead of putting it in decimal and a more confusing number, like 39862.5, this is an example of decimal but a rounded number like 5900, or 3100, or 3800 makes it easier for the traders.
High Volume and accumulation, and distribution zone.
The High volume goes in handy with the accumulation and distribution zone, and it is worthy or better that they should be explained precisely together. The accumulation and distribution zone are basically a subset of high volume and they are the highest area of a particular chart no matter the trend in which the upper hand buys or sells respectively. So far the purchase is worth the cost at that point in time, the purchase or order of such market is very high.
There are some factors to be considered and to always take into account, High volume, which is in the Distribution and Accumulation zone, there are levels for long operation and trend identification. There is always ease shown in buying at the accumulation Zone (the low part) and selling in the distribution zone (the high part). There is no difficulty to discover them, as they have extremely high volumes. The market must be without a particular direction, an undefined direction at that so that the accumulation and distribution area be valid. When the market pattern is in an uptrend, the market volume should be low, the volume in the market should only be when, when the bullish happens, and by that the resistance level is broken. In the same vein, which is in a downtrend also, the market volume should still be below, so that in a bearish wave, the market volume would become high and would break the support level.
It explains how to correctly identify a bounce and a breakout. (Screenshots required.)
There is no use when a trader can identify important levels, and such traders don't know how to use those identified levels, attention must be paid to 2 things when the chart moves to a level that cannot be overlooked. Those two things are stated and explained below.
Bounce
A correct bounce is seen and discovered when the market trend touches the point that cannot be ignored and it struggles to close on the side that opposes it, because when the price closes on the other side next to it, it is of no use, and of course, the bounce doesn't exist. The bounce focuses on buying when the price falls down to an important level which is called support. The traders that are into the trade of bounce often male the attempt or the trial to profit from a corrected short term or at times it bounces off the known support.
The bounce is usually identified from a technical analysis pattern, a good and professional trader knows that there are several and countless trading strategies that can be employed together to trade the bounce and make a good profit from it. The bounce trading strategy opportunity is seen when particular security reaches its support trend lines.
Breakout
A break-out will become so real when the price action struggles to break and move above an important level and close afterward, one thing that must be noted and cause a serious note is a false break out because at times, it might deceive and it will cause a great loss. It should be noted that the volume on the candle that wants to cause the breakout should be relatively high before the breakout and the trade is made.
So, in relation to bounce when the value of an asset increases and move above the resistance or below the support values, we will say a break out has happened.
Question 5
Explain that it is a false breakout. (Screenshots required.)
False break out can be explained the way it sounded, which means that a break out fails when a trader failed to identify this and the trader trades thinking it will be in favor, the profit that such trader thinks will happen will not happen, and ultimately a loss and it might be a great loss. A false break out is a break out that fails to rise above a level, normally break outbreaks support and resistance, but a false one would pretend to want to break out, and it would then later continue the ranging market.
Question 6
Explain your understanding of trend trading following the laws of supply and demand. It also explains how to place entry and exit orders following the laws of supply and demand. (Use at least one of the methods explained.)(Screenshots required.)
When the demand increases above the supply required, the price of the market moves up, and hence the candles on the chart begin to form higher and higher peaks on the chart which will later follow by the influence of a high volume and in the bullish candles and in the same way low volume in the bearish candles.
Also when the supply increases above the demand, the price of the market begins to move down, and hence, the candle on the chart begins to form lower and lower which will later follow by the influence of a high volume on the bear candles and low volumes on the bull candles.
When the stated above is understood the essential part of the trading has been known, although there is still a lot to learn, a milestone has been reached. When identifying the current trend of the market it is important to always keep an eye on the existing market volume, and afterward, the next step will be to read the market to identify the entry point and existing point.
Since it is stated in the question to use at least one of the patterns explained in the class, the pattern I would use is retracement following Elliot's wave.
Retracement following Elliot's wave
In this entry, a delay will occur because it is necessary that we wait until the end of a particular trend and make sure to draw the last 3 consecutive waves that Elliot brings out in a respectful order. This will show the fact and state there is the possibility that the trend has weakened and there is a great probability that a new trend begins in the opposite direction.
In view of this, to have the conditions as it has been stated, the wave “c” which is the last wave the trending volume must be lesser than that of the “a” which is the first wave because the wave begins where the last impulse trade had ended, on the side of the last wave “c” should be able to locate the final peak, lower high in an uptrend market, while it would be higher low in a downtrend market.
The stop loss as I have called it earlier SL must be placed a little way below created when the wave begins which is the “c” the tackle profit should be placed in 1;1 or 1;2 with respect to the stop loss that is set.
Question 7
Open a live trade where you use at least one of the methods explained in the class. (Screenshots of the verified account are required.)
Conclusion
The process and the act of trading are actually simply one, you can buy cheaply and when selling, you’ll sell expensive, and through that and the process, you will make a lot of profit. It is necessary to take note and to do thorough thinking so as not to run into what you are not ready for because that will lead to a great loss. Technical analysis trading isn't dependable, because traders can’t just depend on it, you must be able to trade it together with Fundamental analysis.
The intense study should be made on the resistance and support for the market that a trader wants to be traded, because technical analysis shouldn’t be backed up with indicators alone, with all of these rules followed, a good trade would be done and a professional trader would be made
Special thanks to Professor @nane15