Chart Analysis For Cryptocurrencies: How To Improve Your Trading And Maximize Profits!
DayTrading crypto can be very profitable, but it requires a practical approach. You need to decide your trading style and master technical analysis. For the best results, gain a thorough understanding of these two components before diving into the cold water.
Should you use leverage?
Most day traders conduct smart trades based on technical analysis. You can accurately predict price movements within a short period of time. It is because of their understanding of chart reading and pattern recognition that they can win on almost every trade.
However, being a successful trader is not just about finding the right entry and exit points. Another big factor is maximizing your profits and this is where leverage trading can make a huge difference. The most profitable traders use at least a certain leverage - a value between 5x and 20x is recommended if they are actively engaged in crypto-day trading.
In leverage trading, you borrow money to increase your investment risk and receive a higher potential return in return. A leverage of 20x would mean that $ 100 each would give you $ 500 to trade, and it would take a 5% price movement to double or bust your investment.
Note on managing your cryptos
Never hesitate to trade with 100% of your investment capital if you are not using leverage. Without the leverage, the potential loss on a bad trade is too big and you could lose quite a bit. Crypto bankroll management is more important when you expose yourself to leverage trading - or when investing in ICOs or holding altcoins for the long term.
Leverage trading sounds scary because one small movement in price can wash away your funds. Most people use bankroll management to enable these high risk games without jeopardizing their entire mutual funds.
We recommend (together with others) that you never more than 10% of your investment capital into a single high-leverage trade invest should. With 20x leverage, all it takes is a 5% price move against your favor to lose everything you are risking. Of course, getting 5% in your favor is pretty easy - especially if you understand technical analysis. Trade a little smaller and never risk ruining your position because the high volume of profits will reward you generously in the end.
You might say, "But I want to invest $ 500, what's the use of trading $ 50?" You need to see how a single trade can move against you. 10 failed trades at 20x leverage are very unlikely if you know how to trade. However, two missed calls at $ 250 per trade are likely enough to get you into trouble. Then you have to wonder if you agree to deposit more to try again.
Remember that you are a beginner and it is through real experience that you will become a better trader. Learn from every trade and increase your investment risk as you manage to double or triple your initial investment. After you are confident in your trading skills, it is sometimes okay to risk a higher percentage of your capital. At this point, you will know when and when you cannot be extremely confident about price movement.
Another important point - You should not use your profits on your next investment. It is easier to increase your funds by making several smaller wins. For example, from $ 500 to $ 800 it is a 60% gain, but from $ 800 to $ 500 it is a 37,5% loss. A failed trade can easily set you back many steps.
Bearish or Bullish: You Must Know That!
Next we will look at the variables of technical analysis.
Before you begin trading, it is important to understand the difference between "bearish" and "bullish" markets. Bear and bull markets do not take shape in the course of a day. It is not something that you will ordinarily consider when making day trading decisions. However, it is a long-term variable that can still affect your decisions.
If prices continue to rise, one speaks of a bull market. The 'bull' stands for the upswing and is optimistic. A long bull market can also be interpreted as a bubble that is about to burst. The opposite of a bull market is the bear market, where prices fall. For example, when Bitcoin was last in a true bear market in late 2015, it was trading at lows of $ 200.
In the following we give some examples of Bitcoin based on the price movement from the end of February to the beginning of March 2018. During that time, Bitcoin went from its all-time high of more than $ 19.000 to its low of $ 6.000. It's one of the most famous price promotions and a perfect example of how you can make big money betting on a falling price.
Weekly Bitcoin Chart
What you see is the price of Bitcoin, which will rise from summer 2017 and peak in winter. As you probably know, the price hit an all-time high of over $ 19.000 by the end of the year. Now, we want you to understand this diagram better. Weekly charts aren't always the most predictable, but they tell the best stories.
Do you see the two lines that follow the price movement? The top line (in blue) is called the "top band" and the bottom line (in yellow) is called the "bottom band". These are the "Bollinger Bands" that determine the price channel.
Notice: Don't just rely on Bollinger Bands when determining the price channel. You should too draw trend lines yourself. To do this, mark the heights with an upper line and the depths with a lower line.
Bollinger bands are made up of moving averages. The above image shows a 7 day moving average for the blue line and a 30 day moving average for the yellow line. There is no general mention of these values - you will hear more Emas (exponential moving averages) over 50, 100, and 200 days - but the 7 and 30 day intervals are better short-term indicators.
What do we want to see? Simply put, the bottom band needs to stay low while the top band stays high. We want the price movement to take place either within or above this price channel. Below is an example of what a bullish price channel looks like.
You can always see rising highs and lows, which is the basis of a bull trend (the opposite - falling highs and lows - will happen in a bear trend). The market assumes that the price will continue to rise and investors will be motivated to buy while the price approaches this bottom line, and the safe entry point will rise until the price falls below it.
An Day Trader would try to buy and sell near the support zone (support) when the price is around the previous high. A trader could also go long if the price breaks out and finds support from one of these highs.
Determination of "bearish trends"
Now let's wrap that up and get a greater understanding of how trends work. We're going to look at the price channel that leads to the last "candle" (marker) on the weekly chart we showed you above.
This is a daily chart. We saw the price find support along the upper band through November and December when the market hit an all-time high, and regardless of how much the price went up, the downward move was very predictable.
The upper brace broke and the lower band became the target. This zone was tested as a support, but the price was rising so fast that it took an incredible recovery to keep the same pace. We saw the bands cross around the $ 14.500 mark.
The price found support around the lower band for a short time, but the purchasing power was not as strong as expected and the support line was broken. As a result, the previous bull trend could not reverse and price was found at lower prices.
You are looking at another daily chart. It shows the price movement since the beginning of 2018. Failure to recover from the strong upward trend at the beginning of the year led to an equally strong downward trend. Prices fell from more than $ 19.000 to a low of $ 6.000 in just over a month.
Some very important takeaways from this chart:
- A signal of a return to the bull trend was there when the bands crossed again and passed the first support test.
- Confirmation of the bull trend occurred when the top band first served as a support.
- A decrease in support from the upper band resulted in a rapid deterioration in price, as we saw on the weekly chart when the same support line broke.
- If price sustained this downward movement for a few more days, the lines would cross again and signal a sustained bear market, leading to a renewed support test of the $ 6.000 low.
- The price found great resistance near the $ 12.000 mark, which it attempted to overcome in the downtrend.
- If price had found support at $ 12.000, the market would have found confirmation of the end of the downtrend and the beginning of the uptrend.
The interesting thing is that a lot of day traders bought the hype. Those two daily red candles resulted in countless $ 1 million to $ 10 million liquidations on Bitmex, as well as countless other trading losses on other exchanges.
Everyone thought their investments would be safe as the price gradually rose after the $ 11.000 level was exceeded. The market had only just moved to a bull trend, but an overwhelming majority already listed $ 14.000 to $ 17.000 as the next target for the price.
What can be learned from unusual circumstances
You would be in a select minority if you had anticipated these moves and made proper trades. The price drop occurred much later than expected and before that the market looked good. The best move would have been to stay out of the market for a while.
It's easy to get caught in the wrong signals when the Bollinger bands are curled. Your goal is to find a predictable price channel and trade in that range. The price hit a low of $ 6.000, which was easy to spot at the time. The upward movement was certain once the lines returned to normal. At this point, Bitcoin still had a lot to prove before regaining a natural upside price channel.
We know that you can't sit out the most volatile moments because a day trader benefits the most. The only way to safely trade any price action is to understand how to read candles and where to place your stop losses.
Let's focus on these two things after you've learned how to trend-read.
Candlestick chart analysis for day trading
Candles are signals of price movement. Some candles are bullish or bearish while others are neutral. How bullish or bearish you are does not only depend on the type of candle, but also on when it was launched. While it is important to know candlesticks by definition, reading candlestick charts shouldn't be considered an exact math.
In the following graph you can see the same candle, on the left in its bullish version and on the right in its bearish version:
The green candle is bullish and shows the movement from the opening price to the closing price in one day. This means that in the case of the green candle, the price at the beginning of the day was lower than at the end of the day. The rate increased during the day.
The high and low prices on the same day are shown as wicks next to the candle. The longer the upper wick, the higher the price has risen and more people seem to be convinced of the upward trend that day. The longer the lower wick, the more confident people are who bet on a downward movement.
A few candles alone won't tell you the whole story. You need to look at a candlestick chart like in our previous examples above.
Check candlestick meaning by trading volume
You also need to consider the trading volume behind these price movements, especially with different cryptocurrencies these are very volatile. When the price is rising with low volume, there is no confirmation that the candle is a true indicator. Typically the RSI (Relative Strength Index) serves as a good indicator for volume verification.
The RSI calculates the ratio of the up to the down closing prices within the respective period. The range is between 0 and 100. During a significant upward move, an RSI of 70 and above indicates that it is being overbought, and during a downward move, an RSI of 30 and below indicates that it is being oversold.
Major candlestick chart patterns
We saw a "bullish hammer" when the $ 6.000 low hit Bitcoin. This hammer occurs after a strong downtrend when the market tries to aggressively lower the price but encounters buy volume. The lower wick is extremely long and the candle body is relatively small. The reason is that there was a big sell-off, but the market bounced back from that low point and closed the day near or above where it opened. A bullish hammer can be either green or red, it doesn't matter because the quick rebound from the major low is what matters.
This hammer is in bearish signifying a failed attempt for the market to recover. Red or green, it tells the same story - the bull trend failed to gain ground when attempts were made to force the price up.
It is important not to take any more short positions when you see this hammer. Also keep an eye out for the upcoming uptrend and look for a good chance to buy in the near future as the volume of purchases will increase and soon find a support zone and price rise.
We see this candle when the price moves up and suddenly becomes overbought. It is a bullish indicator because it shows that while sellers at low prices are lowering the wick, buyers are holding the price up. While it's a positive indicator, we're using it as an indication that there will be a short-term support test. Hold back on buying and wait for a second sell-off at a level below the hanging man's wick for a better start.
A Doji candle occurs when there is an attempt to move the price both up and down, but price eventually consolidates in the middle until the candle closes. Sometimes these candles mean nothing.
However, it is often an indication that either bear or bull trends have real control over the market. You may not trade dojis well, but you can expect stronger price action to follow them. At this point, be careful as the market is very indecisive if doji candles fill the chart.
You will find confirmation candles when a resistance or support has been successfully broken. The first candle moves above the threshold while the confirmation candle holds the new range. When the resistance breaks, the green candle stays above the previous resistance line and turns it into a new level of support. When this level breaks, the red candle stays below the previous support line and turns into a new level of resistance.
Make sure that the confirmation candle is coupled with an increase in trading volume. If not, there will likely be a quick and hard reversal. Trader confidence needs to be high when it comes to a breakout. A lack of volume is an indication that it is the wrong time or direction for the current course.
From candlestick chart patterns to trading decisions
Candlestick charts take shape and form patterns. If you can read the patterns, you will be able to make more informed trading decisions. These patterns are indicators of where the price is while the candles themselves tell you why the price is where it is now.
Below are some of the key patterns to keep in mind when day trading cryptos.
Elliot Wave Theory
This theory is a major factor in determining when the market is heading for another uptrend. This trading method is most widely used when it comes to predicting movement sizes via a long-term chart. As with any trading theory, caution applies here as it is easy to make mistakes and lose so much money. Therefore the BC1 team recommends everyone to read this article about the 4 biggest day trading mistakes.
The most common Elliot Wave pattern has five options. Below is an image that shows you a standard 5-wave Elliot pattern and some rules it must adhere to in order to be correct.
When the wave reaches for support, an ABC pattern plays out. If it breaks up, an attempt will be made to keep the five-way cycle going, but if it breaks there will be a downward trend until ABC waves form and break out. Before the market attempts to rally, a successful ABC wave pattern is sought if price falls after a completed fifth wave.
In the picture above, you can see a failed ABC breakout.
This type of technical analysis is the hardest to master. Those who perfect it will be able to make highly profitable trades based solely on reading the waves and predicting the size of the move through Fibonacci retracements. Do not invest based on the Elliot Wave Theory until you have spent hours reading, watching videos, and successfully "demo trading" with this strategy.
Fibonacci retracement level
Fibonacci retracement levels are the ratios at which prices look for potential points to find resistance and support. In the image below, you can see the ETH / BTC ratio at 0,126 before falling more than 35% in less than two weeks. During this period, the market saw small swings with retracement levels of 0,618 and 0,786. The upward movement of these bounces has been limited to one Fibonacci level.
If course retreats to the start of the pump (where you want to measure from) it is a
1: 1 ratio. Extensive Fibonacci steps go beyond this value, which you can see from the retracements that were calculated after the start of the pump.
Fibonacci retracements are used to calculate movement in both a bull and a bear market. You want to take advantage of this tool by starting from the top when calculating how far the price could go before it tries to get support. Typically, it is good to get into a position with tight stops, as in our example, when the price stops falling at 0,618 and 0,382.
Here are the Fibonacci retracements that can happen while respecting a five-wave Elliot pattern, as well as ratios to look out for in ABC movements.
What do you do when the price is in an uptrend and you notice that Wave 1 has formed? On the way down, look for entry points such as 0,618, 0,5 and 0,382 and take a long position.
If we stick to our example, we don't recommend buying blindly at the 0,5 mark. This level is the hardest to get to as it often retests 0,382 (which leaves no room for tight stop losses) and if 0,382 breaks as the support level and wave 1 is interrupted, the losses would be significant.
A bounce at 0,382 will take us to Wave 3 (usually the biggest and fastest wave) and we will be at a great point because Wave 4 is not corrected below the top of Wave 1 which means our stop loss will not be hit.
Finding the Elliot Wave and Fibonacci retracement levels gives you the ability to spot major trends in trading. The profit opportunities on these movements are much safer in day-to-day business. Next we will explain some patterns that are just "trending on trend". These indicators are a little more dangerous, but trading them anyway can create many chances of winning.
The "bullish" pennant represents a pause in price action midway through a strong uptrend. This move helps drive a price higher in a wave, and if the pattern is certain, the upside potential of these trades is substantial.
This step begins with a significant price increase with sufficient trading volume. The price remains closer to the upper end of the price channel. The lows and highs will continue to rise without the price collapsing. If price fell out of this channel, it could quickly drop the market below the beginning of the bull pennant, as indicated by the blue arrow.
In the picture, the dashed green line marks the highest price that can be seen on a wick. Now a green candle body surpasses this line, which means another new high is coming. If the candle breaks the upper yellow line (upper end of the upward price channel) it will mean that a rapid price increase will take place very soon.
Notice: A bullish pennant is an important flag. If you are long when it first occurs, you can place a stop loss around break-even and move into a short position to take advantage of price action. In both positions you have a high chance of making a big profit.
A bearish pennant is an important signal for price to go down fast and hard. The technique of this movement shows that sustained attempts to hit a "higher high" will fail. The bull trend finally gives up and the trend takes over - the price sinks below the previous low.
A bearish pennant plays out in the same way as a bullish one, but vice versa. The pennant will remain intact as long as the highs are steadily falling and the price remains below the trend line that connects to the starting flag. If the lows do not rise, the price will collapse and create a new low. However, when the upper trendline is broken, a rapid upward movement occurs.
You may be wondering how we can predict a failure or breakout so accurately when the trendline is broken. Sometimes the market doesn't play out as the textbook pictures show. When you look at more indicators, a failed pattern makes more sense. For example, if the volume is low, the chart could break up but not get a confirmation candle and then fall below the entire triangle in one quick movement.
Bull and bear flags
Bullish and bearish pennants are distinctive shapes of flags, and these patterns tell a story the market wants to believe. The bull and bear flags are sometimes more inconspicuous.
The picture above shows you the difference between flags (Flag) and pennants (Pennant). As you can see, a bull flag can form with a 'flagpole' and then a sideways movement near the top. The "triple bottom" that you see is very optimistic as it shows that a certain price will continuously find support. If a "triple top" forms, the price could start a downward wedge or the entire upward move could be reversed.
Cup and Handle (bullish)
A mug with a handle means bullish growth over a longer period of time. The daily or weekly graph is used for this purpose. The mandatory minimum time for the formation of the cup and handle is seven weeks. It is also possible that this pattern will continue and only be completed after months or years.
The top of the cup is formed after the start of an uptrend with a movement of 30% or more. The trend will be bearish during the correction and the baseline of the cup will form around a 15% to 30% decline. If the price is excessively declining for a period of time - especially if the pattern runs for months or years - a base depth of up to 50% is possible.
See what happens when the handle forms? The course has created a "double top" and the trend lines for the second top are set. The idea is that price should respect this downward channel as the double top was a signal that it couldn't push higher. Only when the price breaks out with conviction and clears the downward channel do we see a continuation above the previous high point of the price.
If the cup and handle don't break out, what happens then?
The market is likely to drop sharply and then try to recover. Ultimately, the baseline of the cup is tested and vigorously broken. At this point the base will become a new point of resistance and the market will try to hit new lows.
Cup and Handle (Bearish)
There is also a bearish cup and handle pattern. These are more difficult to identify and do not always lead to momentum, while the bullish mug with handle tends to have a more aggressive outcome. We recommend that you continue to observe this pattern in a bear trend as it is a good indicator of a double top and likely continued bearish trend.
Below is a picture of a retrograde ("inverted") mug with a handle.
This diagram could have been very positive. If the handle's trendline had broken up, the previous low would have been tested. Exceeding this range and creating new support would have confirmed a reversal.
However, the inverted cup with handle is difficult to break out because the handle implies only a negligible upward movement. Most reversals have a quick and hard bounce (with volume) and the price channel will quickly be near or above the previous high. Since handle formation requires a gradual upward movement to form the channel (and then the breakout), it is almost always associated with a sharp fall in price.
With Bitcoin, we are currently seeing that a perfect inverted cup and handle are being formed. The weekly chart shows the cup starting in November 2017, when Bitcoin surged above $ 5.000 and the price continued to climb to its all-time high. That was 17 weeks prior to our March 2018 example above, which means we've exceeded the 7 week minimum time for the cup and handle pattern to take shape.
The big red wick below occurred when the $ 6.000 low happened in the first week of February. The handle of this cup and handle pattern starts after that candle. The second big red wick came from a $ 8.342 low. The second low was higher and gave us a channel to draw trend lines on. Now we assume that the market respects this channel and either goes up or down accordingly.
A serious decision will be made very soon. We know that there is tremendous pressure on price to either go down a large percentage or officially reverse into an uptrend. The most terrifying part is the trend line moving down from the all time high.
The price actually broke from the bottom when the price was above $ 10.500 in early March. However, this was short-lived and he found support in the newly formed handle. But to keep this trading channel going, he needed price promotions in the $ 10.000 to $ 14.000 range, which happened very soon.
The above picture is the daily chart. The change from weekly to daily gives us a better overview of where things are and what has to happen in the short term in order to follow the trend.
As we can see, the price needs to stabilize again quickly above $ 10.000. The top trend line is at $ 14.000 which is a high target for a breakout right now. If price finds support above $ 12.000, we could definitely see an attempt to retest the all-time highs (more than $ 19.000 in December 2017) as this is part of the cup-and-handle pattern we're trying to visualize here.
A triangle is a pattern, but it should be viewed more as a charting tactic. The idea is that the trend lines come together to form a triangular shape. The price channel narrows as a triangle nears completion. When a long-term triangle has reached its end point, a break on the top creates a huge rise in prices, while a break on the bottom creates a sharp fall in prices.
Symmetrical triangle (neutral)
We have a symmetrical triangle on the weekly chart that broke out but never got its confirmation candle. The rise to $ 11.700 brought the price above the upper trendline. The next candle did not break the lower trend line because a higher low was reached. A symmetrical triangle is not necessarily bearish or bullish, but when it does break out, it does give an indication.
However, this symmetrical triangle has been shaped to turn out to be bullish. Thanks to the contextual understanding, we see a change from a descending (falling) triangle to a symmetrical (neutral) triangle.
Descending triangle (bearish)
Descending triangles have top trend lines that keep going down, while the bottom trend line stays the same. The concept is that the heights keep falling and so the time runs out until this house of cards collapses.
Take a look at the example we just referred to.
The lowest trend line we drew is based on the body of the candle from the price's $ 6.000 low. You can decide for yourself whether to use the wick base or the candle body base. What happens when the current trend bears fruit quickly - how do we imagine that? We believe the body of this candle is a support line - which appears to be the case given the low of $ 8.342 on the next big red wick.
So we saw a green candle body go above the top trend line. This was answered with a red candle in the next trading week, but the breakout is not yet denied. The market assumed a reversal, but without that confirmation candle on the weekly chart, there is no certainty. That candle closed on March 11th and the most optimistic scenario was just above the trendline. For this to happen the prize must be kept above $ 10.000.
If the price continues to deteriorate, what can we predict next? We have the red wick from the $ 6.000 candle as the next measurement point. If we were to create a chart using the candle as the bottom trend line, we would likely see a retest of the $ 6.000 lows very soon.
Summarize the different indicators.
We explained how an inverted cup and an inverted handle were formed. We are currently in the handle phase. The descending triangular breakout has occurred but has not yet been confirmed. A confirmation of a break out of this triangle also coincides with the continuation within the upward channel of the handle.
If this triangle is not confirmed, the course will not be able to prove its reversal and the handle will be aborted. When that happens, the low retest of $ 6.000 makes sense as the downward momentum of the broken handle is pointing down.
It's been a while since we saw an ascending triangle on the weekly chart.
This triangle is very interesting as the breakout happened just before the market went mad. It played out perfectly back then. Bitcoin day traders seriously feared a major crash, but - after the $ 3.000 surge - the lows kept getting higher.
The price rose and rose and never fell again once it passed the $ 5.000 mark. Why is this? Since the bullish ascending triangle was experiencing a legitimate breakout, it meant a lot from a technical analysis perspective. The reality was that the rapidly rising trendline was being respected by the market.
Those who traded at the time knew how bad the mood was and weren't expecting a break at $ 5.000 - even if there had been a break, everyone thought it would only be a day or two. In hindsight, it all makes sense when you look at a chart.
Double Bottom (bullish) & Double Top (bearish)
The "double bottom" is a very basic trading pattern that exists when the market hits a bottom and then finds support at the next test. The double bottom is confirmed after the failure of the repeat test and answered with a bounce. However, while a double bottom is indeed bullish, you need to look at larger patterns and indicators to determine the size and sustainability of the bounce.
Example of a double bottom:
As you can see in the graph above, the course has "fallen off a cliff" and hit first bottom. He tested that cliff (the cutout) again, but came back down and bounced as soon as he found support there. Trade can move bullish when price comes above the cutout and turns it into a support level.
DoubleBottoms look like the letter "W" on a card. Double tops look like the letter "M".
Example of a double top:
The "double top" occurs when price hits a high, is corrected, retests the high and does not break. The relapse leads to a test of the clipping. Should it be broken, it will go very backwards. Depending on the timing chart you're looking at, the downtrend could last hours, days, weeks, or even months.
Head and shoulder (bearish)
The head and shoulder pattern is a sign that a bull trend is over. Once closed, the market will fall and aim for a 1: 1 correction. This means that if the baseline collapses, the price will fall as much as it rose before the pattern began. For example, if it started at $ 9.000 and peaked at $ 11.000, then we would set a target of $ 7.000 when the market breaks down.
The picture above shows a standard head and shoulders pattern. Sometimes the right shoulder is a little deeper, but it doesn't have to be even with the left shoulder. A higher legal simplification symbolizes that the market trended slightly higher in the direction of the previous peak. You are still seeing a double top - and a failed double bottom attempt against an existing support line - which is incredibly declining.
Reverse head and shoulder (bullish)
An inverted head and shoulders is the same chart pattern but reversed. It is a little more difficult to see visually, but has the same concept and meaning.
This graph also shows where to go long and stop with a stop loss. With your head and shoulders upside down, you have a better chance of profiting with low risk. An entry point near the top of the head is completely safe.
Your stop loss will not go away.
The head height is only interrupted at high volume, so that your position is secure. If the price hits the bottom, it means that there is a "triple bottom" and this time we have marked a higher low. The course will undoubtedly rise, challenging the clipping where the left shoulder began. If this level is broken then the market will have a 1: 1 ratio on the upside.
Remember to look for a volume check when an affirmation candle appears. If a support or resistance seems broken, the volume indicators will show everything.
Always pay attention to the chart periods
Remember how earlier in this guide we showed you a Bitcoin weekly and daily graph? We wanted to explain how movements become more predictable over a longer period of time. This fact can be very beneficial to you as it shows you the true levels of support and resistance.
Price channels are the 'rushing' between larger moves that occur at key support and resistance price points. Your trades are safest when you take a position directly over a critical support or directly under a key resistance. You are also pretty safe when taking a long position when resistance first turns into support, or short when support first turns into resistance. Regardless, you need to know how to identify these long-term support and resistance levels.
We showed the weekly chart to illustrate a monumental price move. The all-time high of more than $ 19.000 fell hard to a low of $ 6.000. The upturn took shape and the uptrend was viewed as having returned after the weekly candle first broke the upper Bollinger band with conviction.
What timeframe should you use when day trading?
TIP: We won't recommend a single timeframe, but we will demonstrate a dynamic Bitcoin day trading strategy that works. As we mentioned earlier - we're going to show you how one would analyze the February 6.000 $ 2018 low and the failed reversal. You will see how the re-crash was predictable and how you would have made big profits.
We encourage you to get into smart trades.
Do not limit yourself to day trading Bitcoin, as that would be very disadvantageous. You won't find highly profitable trading opportunities every day. Lots of other altcoins with a reasonable volume of trade also make big moves like Bitcoin. You should target a handful of coins, keep track of key price levels, and make your trades when you see an opportunity.
This must be taken into account:
Look at the graphs with shorter time windows - mostly 5 and 15 minutes - to find out what kind of movement is taking place at the moment. Is there an upward or downward price channel?
When price movements appear predictable on the short-term chart, switch to the 1-hour chart next. The 15-minute chart only shows the price development for the last 30 hours or so. The 1-hour chart gives you more than five days of data.
With this strategy, we can pinpoint the exact point in time when the price of BTC crashed from its supposed recovery.
As the price slid off the blue line, there was a confirmation candle indicating that the downward move is actually becoming a trend.
Do you understand what happened??
The candle with the white box is our confirmation that the price would continue to fall on this graph (1-hour time frame). We could either take a position during this candle or try to find a better opportunity. Sometimes you can get a higher sell price waiting for the support and resistance levels to be retested. However, they were pre-waved and the likelihood of a short-term recovery at that time was very small.
We saw the price move along the blue line (7 day average) after making a bearish cross with the yellow line (30 day average). This signals that the price will fall faster in the near future than in the medium term.
A short sale at the bottom of the confirmation candle would have been a sure move. Your entry would have been around the $ 11.200 mark. The next thing to figure out is when to close your position and where to put your stop loss, let's say you are using 20x leverage, which means that a 5% increase is your investment would lose.
5% over $ 11.200 makes a price of $ 11.760 either way you lose the trade. So you know that your short position will not be liquidated in the middle of another range trading. If the price is actually going down, it would be necessary to make a new local high for your trade to be a loss. In this case we don't worry about a stop loss.
Pay attention to larger time frames regularly
Now let's look at a four-hour chart that gives us trading data worth about three weeks. The story of Bitcoin Price gets even gloomy on this chart. Since you are not yet an experienced trader, we will explain what you are seeing right now.
"The low point"
We encourage you to enter your position at $ 11.200 and opt for a low price to exit. That mark was the line you see on the bottom of the last red candle on the chart. It's not the candle. The previous low of around $ 9.200 was an indication of where the price would head once the hourly uptrend collapsed.
This is what we are getting at. Don't just trade on a single chart. Also, ignore 1-minute or 3-minute charts unless you are trading 33/XNUMX or using leverage of XNUMXx and above.
We have now decided that we will get in at $ 11.200 and risk our entire investment in hopes that we will get out around the $ 9.200 mark. If the price behaves as we expected, it means that we predicted an almost 18 percent decline in prices. If you had invested $ 1.000 in trading, you would have made $ 3.600 in profit.
That prediction was wise and obvious. What do we do now that the course has met expectations? We need to find out how it will develop in reflex to the new downtrend. We know the price has bounced back since $ 6.000, so there is still plenty of room for price decline. We could technically hold the position we already have, but your goal should be to increase your cash on hand, and retention is essential to being a consistent winner.
"The Fake Recovery"
The price bottomed out at $ 9.025. The candle on the 1-hour chart struggled to close below $ 9.250 as the price at that level previously had support on the 4-hour chart. That the support line has been broken on the 4-hour chart means that the market will almost certainly try to push the price even lower. This movement can only be stopped if sufficient purchase volume prevents the decline. In doing so, it would turn the $ 9.200 level into a new floor.
The price is incredibly bearish and a retest is expected to be successful. We look at longer time frame charts that are now playing a role in the current trend. The next meaningful chart to review is the 12 hours that the $ 6.000 low becomes apparent. However, many traders jump straight to the 1-day chart, because when the 12-hour chart fits the pattern, the 1-day chart is almost always tested.
This is the daily chart of the start of Bitcoin's price recovery after the $ 6.000 low.
The confirmation candle came to life today. We can safely say that the Bollinger Bands are two strong points of resistance. You should therefore try to take a new short position around the $ 9.800 price limit.
But time is running out ...
The weekly chart currently tells an even bigger story. We are seeing a complete reversal to stop the Bitcoin curve's uptrend. We are talking about a complete change in market sentiment from the beginning of 2017 to the period considered in the example. As you can see in the weekly chart below, the Bollinger Bands are on the verge of forming the absolute bearish cross.
We see a symmetrical triangle nearing its end on the weekly chart. Completion of this triangle will make the price soar up or down. Since this happens during a bearish trend, it is a good indicator that the price will soon fall sharply.
The RSI values under the volume candles make the analysis even clearer.
RSI of 70 or higher is what happens when "overbought" FOMO (Fear of Missing Out) , in German (fear of missing out) sets in and everyone buys and believes that the price will rise. The market remained in overbought territory through the end of 2018. 50 is the neutral zone and 30 is the start of the "oversold" RSI. At $ 9.200, the price action only reaches neutrality - so the market can take a lot more downward momentum right now.
Re-entering the short sale for the next downtrend
If we go short again, we want to do so with a target around the upper band of the hourly chart. At this level, there is very little risk for us of being liquidated. The upward trend is limited and therefore gives us security. Only if price actually reversed to an uptrend could our position be compromised. The level fell very quickly - within six hours - from $ 10.100 to $ 9.800. The market is showing a lot of pressure on the weekly chart (huge triangle test), which means that we may not see the upper band before the market is sold out again.
We might choose to target a retest for a lower band, that is, wait for $ 9.600 to be placed on a short sale. At $ 9.600, the price would have to recover to $ 10.080 to liquidate our position. This scenario is unlikely given the current tremendous pressure. However, it is far more likely than the rebound from above $ 11.700 when we placed the short at $ 11.200.
Here's what you need to know:
You cannot predict the trade waves within a range. Sometimes when the market feels doomed, the price goes up 10% just to wash out short positions. In other cases, when the market is open to a major upturn, flash selling may occur to wash out long positions.
Do you really want to risk a good position for a little extra profit? The $ 11.200 call was a great one and definitely worth it to keep if you bet it on time. However, if there weren't any longer-term charts to justify a sustained downtrend, it would make perfect sense to liquidate the position and wait for the next scalping opportunity.
Did you see what happened?
Price rallied briefly at $ 9.471 before falling down. The lower band adjusted when the level was reached. Therefore, the lower price point of the band was theoretically a real opportunity to re-enter a short position.
The problem is, you might have called back a retest of that line when it was $ 9.600 and you would only have gotten in if you had lowered your retail price further. Aim your entries in real time based on Bollinger Band movements to maximize potential rewards and minimize risk.
Diesel local (short-term) highs of $ 9.471 resulted in a slight retest of the $ 9.025 low (tested earlier on the day). The result was a massive sell-off to $ 8.342 - almost 29% off its previous high of $ 11.700. It would have paid off generously to hold your position here - the price move from $ 11.200 to $ 8.342 is more than 25%, equivalent to a profit of $ 5.000 on a $ 1.000 short sale at 20x leverage.
Does the idea of holding your position sound intimidating? It's just a matter of finding the right time to wait a little longer. The $ 9.200 support zone test was an expected battle on the daily chart, but the weekly chart told a fuller story. The entire trade would have taken less than three days.
Where the price of Bitcoin could move
We have already made incredible profits based on the trade analysis presented. The weekly chart is at a decision point where it could continue to collapse or see a sharp surge. The latter is unlikely as it will require volume to return to late 2017 levels.
We don't see any oversold values either.
With the price in the $ 8.000's, the RSI still hasn't crossed 50, which is the neutral level, before the oversold area starts at 30. Remember that "oversold" also means "underbought," so when the RSI is 30 and below the buying volume will typically return and cause the price to rise.
This is what the weekly chart looks like. The big red candle at the end shows a week that has not yet been completed (there are two days left). We see a high chance that the market will continue the serious downward trend. The most likely scenario in which this prediction is correct would have to show the closure of the candle body below the lower Bollinger Band.
A final decline signals a massive bearish cross for the next week. At this point it will be very easy to get a confirmation candle (for the weekly break). The extent of the decline cannot yet be determined as it depends on various indicators that are not yet visible. However, it is expected that the support level test will be around $ 6.000 (the top line of support in the graph above). The next big support that ignores the $ 5.000 psychological level would be $ 3.000, which was the bottom before the surge began in late 2017.
This is how the price has developed since the decline (4-hour chart). We are seeing a healthy rebound that is having an impact as the market has hit a double bottom, making both a higher low and a higher high.
There is a beautiful bull flag formation that started after a confirmation candle over the first Bollinger Band. The "flagpole" ran over both lines, where attempts were made to find support and hold the flag until the price breaks out. A high-volume upward movement would be massive at this point, as the neckline would break and the $ 10.000 mark would become not only psychological but also technical support.
Above we can also see on the 3-day chart that an ascending triangle (bullish indicator) is forming. This suggests that the price will either go up quickly or the price channel will narrow sharply at $ 10.000 to $ 11.000 before something crucial happens.
Conclusion on the great day trading guide
For day trading purposes we need to be extra careful. These highly volatile moments are often led by a sudden lack of volatility. The price could fluctuate many times within a small range, and these "troubled waters" can be very unprofitable. Our goal should be to continuously track price developments and wait for a key indicator to tell us that we should buy or sell.
Remember we showed you an inverted 'mug and handle' weekly chart pattern earlier. This pattern is the largest formation indicator that existed up to the date of the above chart. You will want to track the price at shorter intervals, but will want to return to the handle formation if this uptrend continues as the breakout that signals new all-time highs for Bitcoin.
We hope that this post was useful, it was not easy to create it for you, but with a lot of effort we made it. You are welcome to obtain further information on the subject of cryptocurrencies on our website. We are happy to support you on your way.
Your Bitcoin-News.one Team!