Using Dow Theory to Make Informed Cryptocurrency Trading Decisions

Dow Theory is a technical analysis tool that has been used for over a century to analyze the stock market and make predictions about future trends. However, it can also be applied to the cryptocurrency market, which is rapidly gaining popularity as a new asset class. By using Dow Theory in conjunction with cryptocurrency analysis, traders can gain a better understanding of the market and potentially make more informed trading decisions.

What is Dow Theory and How Does it Work?

Applying Dow Theory to the Cryptocurrency Market

How to Use Dow Theory to Profit from Cryptocurrencies

Key Takeaways for Using Dow Theory in Crypto Trading

Conclusion

What is Dow Theory and How Does it Work?

Dow Theory is based on the work of Charles Dow, who founded the Dow Jones Industrial Average (DJIA) in 1896. The theory is based on six principles that include the market discounting everything, market trends having three phases, and the market averages confirming each other. These principles can be used to analyze trends and potential trading opportunities.

Applying Dow Theory to the Cryptocurrency Market

The cryptocurrency market is unique in its volatility and the lack of traditional financial indicators. However, traders can use technical analysis tools such as moving averages, chart patterns, and momentum indicators to identify trends and potential trading opportunities. By following the trend, confirming the trend with other indicators, watching for reversals, identifying support and resistance levels, and using stop-loss orders, traders can make more informed trading decisions.

How to Use Dow Theory to Profit from Cryptocurrencies :

To use Dow Theory to profit from cryptocurrencies, traders should first follow the trend, identify the direction of the market, and position themselves accordingly. They should then confirm the trend with other indicators such as moving averages, relative strength index (RSI), and volume. Traders should watch for reversals and identify potential entry and exit points using support and resistance levels. Finally, traders should limit their losses by using stop-loss orders.

Key Takeaways for Using Dow Theory in Crypto Trading

Dow Theory can be applied to the cryptocurrency market to identify trends and potential trading opportunities.

Technical analysis tools such as moving averages, chart patterns, and momentum indicators can be used to confirm the trend.

Reversals can be identified by changes in price patterns.

Support and resistance levels can be used to identify potential entry and exit points.

Stop-loss orders can be used to limit losses if the market moves against you.

Conclusion By applying Dow Theory principles to the world of crypto, traders can gain a better understanding of market trends and identify potential trading opportunities. However, it's important to remember that technical analysis is not a precise science, and it should be used in conjunction with other forms of analysis, such as fundamental analysis and market sentiment. With the right tools and strategies, traders can make informed trading decisions and potentially profit from the cryptocurrency market.

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Weekly Chart: BTC give weekly closing near $28000 in back to back second week. It indicate that bulls able to hold previous week 26% jump. We can see a common doji candle pattern in weekly chart which means bulls and bears both are slow and not able too move too much. But it will win situation for bulls as they able to hold price for 1 week.

Support: $25300 and $22600 are good support on weekly chart and will be buying opportunity area.

Resistance: $28k-$32k is a resistance area as BTC hold this area in 2021 bull run as support. Successful breakout above $32k will open Target for $42k-$48k in coming months.

$weekly chart indicate that BTC will be give sideways movement in this area for next 2-4 week Which range can be $26k-$32k.

EVENT:

-Quarterly Expiry : March 31

- March CPI data will release on April 12

#bitcoin #BTC #technicalanalysis #Binance #cryptocurrency

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Trading requires patience and passion for learning different techniques. Of course, it involves the inevitable trial-and-error phase plus the disappointments along the way. The idea is not to give up and keep refining the ideal strategies that work perfectly for you. So, to formulate a perfect trading plan, understanding the chart formations and indicators is crucial. Ultimately, to help traders speed up the path towards ultimate success. Above all, knowing the triangle patterns and formations does more good than harm.

Not only it gives traders a more holistic picture of the full risk and potential reward in a trade, but it’s also useful to develop breakout or anticipation strategies, especially when you’re day trading in crypto, forex, or stocks. Besides, often, these patterns provide low volatility entries compared to other chart patterns.

Table of Contents

What Is the Triangle Pattern?

Why Do Traders Use Triangle Patterns?

Ascending Triangles

Descending Triangles

Symmetrical Triangle

Triangle Pattern Timescales

How to Crypto Trade with Triangle Patterns?

How to Test the Triangle Strength?

The Key Considerations When Trading With Triangle Patterns

How do Triangle Patterns help in Position Sizing & Risk Management?

Closing Thoughts

What Is the Triangle Pattern?

Triangle patterns refer to chart formations comprised of multiple candlesticks enclosed within two converging support and resistance lines. The two converging lines depict the shape of a triangle. These patterns are important because it’s helpful to indicate the continuation of a bullish or bearish market. 

Plus, triangle patterns have a high probability of success, especially as a continuation pattern of the existing primary trend. Hence it’s useful for traders to benefit from the trendline along with a converging price range. 

Why Do Traders Use Triangle Patterns?

Traders use triangle patterns as they provide a very objective way to test a market direction and potential breakout without allowing a high stop-loss potential. Triangles provide a sharp entry point near the breakout levels and, many a time, give vital clues through low volumes ahead of a breakout.

In technical analysis, we can distinguish three types of triangle patterns:

Ascending triangles

Descending triangles

Symmetrical triangles

Ascending Triangles

Ascending triangles can be defined as price action formations where we have a horizontal top and an up-sloping bottom. A breakout can be either on the upside through the horizontal resistance or on the downside piercing the rising slope.

So, when you connect minor-highs using a horizontal trend line and use a rising line to connect the minor lows, you will get an Ascending Triangle. The ascending triangle patterns usually form after one to two months. It is calculated mostly from the start of the pattern to the breakout and not until the apex.

The volume goes down as the price oscillates between the resistance and the support several times. The pattern is valid only if the price forms two distinct minor highs before any breakout. The trendline meeting happens at the triangle’s apex, but prices can break out long before that.

The price action must fill the body inside the trendline before moving outside the boundaries; prices shouldn’t move along just one of the trendlines.

During the initial stages of the formation, the volume action will be heavy. Still, as the price action confines within the boundaries, the volume subsides and might even be abnormally low just before the breakout (which happens on heavy liquidity.) The volume action given here is an ideal formation, but variations are not uncommon. Particularly, upside breakouts should be followed by heavy volume. But for the downside breakout, low volume action performs better.

Considerations of The Triangle Patterns

On the contrary, the ascending triangle pattern is prone to false breakouts; even the volume action is similar to a genuine momentum. A false breakout will re-enter the formation’s body and most probably will restart the move within a few days. The pattern is usually a continuation of the existing trend before the triangle formation.

After a successful breakout, prices move away. But could re-test areas near the breakout point before gaining momentum. It is essential to watch out for the significant trend’s resistance or support zone before trading on this pattern. As an opposing price cluster against the pattern breakout’s direction decreases the chances of a successful trade.

Also, be wary of a conflict with the broad market direction – it is another performance killer.

For upward breakout – it is better to concentrate on patterns with prices near the yearly highs or lows and avoid those forming near the middle of the annual trading range. There is no particular difference in performance regarding the pattern formation in the case of downward breakouts.

It is better to have a gap during the downside breakout, while on the upside breakouts, it is immaterial.

How Did the Ascending Triangle Breakout Happen?

Most of the ascending triangle breakout happens near 62% distance from the start of the formation to the apex.

Another critical aspect to note is that upward breakouts take more time to reach their target than downward breakouts.

The pattern’s height directly impacts the ultimate results. Usually, they perform better than short ones in all market directions and conditions. If the breakout is in the direction of the prior trend, then tall and wide patterns perform best, while counter-trend breakouts perform best with tall and narrow patterns.

Descending Triangles

Descending triangles represent a bearish pattern in which the price formation should consist of a flat support line and a falling top; breakouts can be upward or downward. While a downside breakout during a bear market can result in substantial gains.

In this pattern, the prices tend to keep falling to the same area and bounce back each time, but the bounce’s height is lower than the preceding price. Volume usually follows a receding trend from the start of the formation, but it is not a critical benchmark. The volume will mostly be relatively low just before the breakout and then explodes during the subsequent action.

As discussed during the ascending triangles, you should not ignore a breakout just because of the volume action. Many successful breakouts happen on low volumes too.

Similar to ascending triangles, the breakout could also happen ahead of the support and resistance lines’ meeting point. The formation body should have at least two minor lows- touching the horizontal support line. The moves touching the bottom line should be distinct, and you should count the touches in the same consolidation together.

How Did the Descending Triangle Breakout Happen?

The breakout can be in any direction, irrespective of the primary trend: Descending triangles might be a reversal pattern or a continuation pattern. There is a chance of no breakout after the formation, and prices continue to roll near the triangle apex.

The formation usually results in more downside breakouts than one in the upside. However, as discussed earlier, an upside breakout confirming the prior trend performs much better than the downside action.

Studies suggest that more than 84% of all upside breakouts in a bull market completes the target price journey.

The price might return to the breakout point, usually within two weeks, and will restart the momentum soon, most of the time. As for the earlier horizontal support, it acts as a resistance and the slope as a support if the price retraces after a breakout.

Key Considerations of A Descending Triangle 

What considers a correct descending pattern is when there are more than two distinct minor high-low moves for a good pattern. Without enough crisscross movements during the pattern formation, the descending triangle will not be valid.

It is more fruitful to focus on the upward breakout in this pattern, as they result in more than a 45% rise in a bull market and 25% upside even in a bear market. When successfully reversed in a bull market, even a failed downward breakout results in a more than 50% jump in prices.

Generally, the number of days to achieve the target in an upside breakout is much higher than downward action.

Symmetrical Triangle

Symmetrical triangles are price formations where both support and resistance lines are sloping and converging towards one another. The resistance line falls downwards from the top while the support line rises upward from the bottom.

Like the rest of the triangle patterns, it is critical to have at least two minor highs and lows. It would be best if you counted only the distinct touches to check the pattern validity. The price action should fill the space between the two sloping lines, and there shouldn’t be many blank spaces within the body.

The volume usually recedes during the formation. However, it can also be irregular at times. The volume touches the nadir just before the breakout.

Symmetrical Triangles usually take more than three weeks to establish. The breakout direction can be either on the upside or downside. The formation can sometimes result in no breakout, resulting in lackluster moves.

An exciting add-on to this pattern is that a busted pattern gives a better result than the original breakout trade. That, if a triangle breaks out, but fails to move more than 5% and then comes back, and pierce through the other side of the symmetrical triangle, the new trade, which is the complete opposite to the original breakout direction, might result in a much more fruitful result. Also, a reversal like this can give exciting returns if the move happens in the primary trend direction.

Symmetrical triangles provide the best returns when traded in the direction of the existing trend in the broad market: trade upward breakouts in a bull market and downward breakouts in a bear market. Nevertheless, even in a bear market, the upward breakout can give 15% gainers with low failure rates.

Typically, traders prefer to do range trading using the formation’s body and stay out when the area narrows near the apex.

Triangle Pattern Timescales

Ascending Triangle patterns take around two months to form, calculated from the start of the pattern to the breakout and not till the apex.

Descending Triangle patterns usually take 55 days to form in a bull market and 62 days in a bear market, from formation start to the breakout.

Symmetrical Triangle patterns usually take around 50 days to form, from the start to the breakout.

How to Crypto Trade with Triangle Patterns?

Cryptocurrencies like Bitcoin are often in the news for their volatile behavior, rising and falling fast. Even a 10x move in less than a year is not very surprising in the crypto world. Triangles can often give an advance indication of an explosive move. Let’s check a recent symmetrical triangle formed on the BTC/USD price chart.

The daily candles resulted in a symmetrical triangle in December, and a breakout after that took Bitcoin above $40k within a few weeks. The breakout exemplified the power of triangles to help you catch big moves at the right time.

The formation indicated a high chance of success on the upside as the primary trend has been bullish.

Now, we are in a strong bull market in the crypto space. A lot many opportunities, like the above in Bitcoin, can happen. It is the right time to learn and use triangle patterns to benefit from huge moves.

How to Test the Triangle Strength?

As you have seen earlier, the triangle formations are valid only if the price moves back and forth between the two trend lines multiple times. There shouldn’t be many blank spaces in the price formation, meaning the price shouldn’t meander along, touching one of the boundaries all the time before a breakout. A minimum of two distinct minor highs and minor lows must be present in the price formation.

The Key Considerations When Trading With Triangle Patterns

It is essential to understand those false breakouts are common in the Triangle Patterns and be mentally prepared for that. Other patterns like the Wedge or Flag look similar; you should be able to distinguish between them.

Make sure the pattern touches the border lines at least two different times before a breakout.

Just ahead of a breakout, usually, the volume dries up. Understand the volume behavior in the patterns and be alert if you find unusual developments.

How do Triangle Patterns help in Position Sizing & Risk Management?

Triangle expected minimum move after a breakout is equivalent to the formation’s height at the triangle’s start. Suppose the breakout fails to sustain and falls beyond the triangle’s other boundary, exit immediately with a loss. A busted pattern can also provide you with a critical profit opportunity if you join the movement in the opposite direction of the initial trade.

False breakouts are common in triangles, and hence cutting a position only because it re-enters the triangle body will result in missed opportunities and unnecessary loss booking. Often, the second breakout will be far more successful after a failed first breakout.

You shouldn’t risk more than 2% of your account value when entering a triangle breakout. Your stop-loss value will be almost equivalent to the breadth of the pattern at the time of breakout. A successful move or opposite side entry in a busted breakout can give a return much higher than your initial planned loss.

Triangle’s real value is its ability to minimize your risks and maximize profits in crucial junctures by providing a precise term of reference for your action.

Calculate your stop-loss and determine how many units of cryptocurrencies you can take in a single position on a 2% of account value as the maximum loss limit for a single trade. Always take a position size below that limit.

Closing Thoughts

By studying triangle formations, you have grabbed an essential tool for your successful trading journey. Practice every day to successfully identify these patterns and test them in a demo account before employing real money.

#Binance #crypto2023 #BTC #technicalanalysis #buildtogether

Cracking the Code: Exploring 11 Popular Cryptocurrency Terms and Phrases:-

If you've ever delved into the world of crypto and perused crypto Reddit or Twitter, you may have encountered a bewildering array of acronyms, gamer memes, misspelled words, and more. From FOMO and FUD to laser eyes and whales, the cryptocurrency landscape can be challenging to navigate, especially for beginners.

To help you make sense of it all, we've put together a beginner's guide to eleven of the most commonly used pieces of crypto lingo. So, whether you're a seasoned crypto trader or just getting started, this guide will help you become crypto-literate and navigate the jargon like a pro.

FOMO:-

FOMO, or "fear of missing out," is a term used in the cryptocurrency industry to describe the intense anxiety that arises when markets are rising rapidly. This can lead to emotional trading and poor decision-making, which can be hazardous since hindsight is 20/20, and it's easy to regret the gains you would have made if you had timed your trades better.

To minimize the impact of FOMO, it's critical to have a well-defined strategy and stick to it, particularly if you believe that the asset you're investing in will appreciate over the long run. Dollar-cost averaging (DCA) is a popular approach in which you invest the same amount at regular intervals, regardless of market conditions. This technique can help minimize the impact of market fluctuations while providing a disciplined approach to investing.

FUD:-

FUD, or "fear, uncertainty, and doubt," is a propaganda tactic used to manipulate public perception about a product, technology, or candidate. It involves the strategic dissemination of misinformation aimed at creating a negative emotional response. Gene Amdahl, a mainframe-computer architect and entrepreneur, is credited with popularizing the term in the 1980s, describing how IBM salespeople worked to delegitimize their competitors' products.

In the cryptocurrency industry, FUD is often used to describe skepticism around the technology from the media or traditional-finance analysts. However, it can also be employed by advocates of a specific token or protocol to discredit criticism. In response to FUD, it is essential to "DYOR," or "do your own research." Conducting independent research is critical to making informed investment decisions and avoiding the influence of misinformation and propaganda.

By remaining vigilant and conducting your own research, you can navigate the crypto landscape with greater confidence and make informed decisions based on accurate information.

Diamond hands:-

The phrase "diamond hands" is a meme that gained popularity among crypto and stock traders on Reddit. The term signifies an unwavering commitment to the "HODL" philosophy, which refers to holding onto an investment long-term instead of selling it when prices fluctuate.

Online groups sometimes use the diamond hands meme to express their collective determination to drive up the price of a particular asset or memecoin. Conversely, the term "paper hands" is used to describe traders who are easily swayed by market volatility and sell off their investments prematurely.

The diamond hands and paper hands memes are part of the colorful lexicon of the crypto world, which has its own unique language and culture. While these memes may be entertaining, it is crucial to approach investing with a disciplined and rational mindset, free from the influence of social media hype or peer pressure.

HODL:-

HODL, the misspelling-turned-crypto-slang-term, is one of the most widely recognized phrases in the crypto community. It emerged from a typo in a 2013 Bitcoin forum post and has since become a rallying cry for long-term investors. Simply put, HODL means holding onto an asset for a prolonged period, regardless of short-term price movements. The original post, written by a programmer under the pseudonym GameKyuuubi, contained a message that remains relevant today: don't panic during market volatility. While traders may try to profit from price swings, HODLers believe in the long-term value of their assets. Despite crypto's notorious price fluctuations, HODLing has proven to be a winning strategy for many investors. Bitcoin, for example, has seen several bull and bear cycles but has emerged as one of the best-performing assets of the past decade. One effective way to practice HODLing is through dollar-cost averaging (DCA), which involves investing a fixed amount at regular intervals regardless of market conditions.

The flippening:-

The flippening is a term used in the crypto world to describe a potential future event in which Ethereum's market capitalization surpasses that of Bitcoin. This event is purely hypothetical, but it has been discussed and debated among crypto enthusiasts for years. The term can also be used to describe any situation in which a smaller or less-established token or protocol has the potential to overtake a larger and more established rival. The flippening is seen by some as a symbol of the dynamic and constantly evolving nature of the crypto market, where innovation and disruption are always on the horizon. However, others view it as an unlikely scenario that will never come to pass. Regardless of its actual outcome, the flippening remains an intriguing and often-discussed topic within the crypto community.

Memecoin:-

Dogecoin (DOGE) is a cryptocurrency that was created based on a popular meme. It gained widespread attention in 2021 when it experienced a sudden surge in value, leading to the emergence of numerous other tokens with similarly ridiculous names. These memecoins were made possible in part by decentralized exchanges such as Sushiswap, which enabled anyone to easily list a token. In a gesture of philanthropy, Ethereum cofounder Vitalik Buterin donated over $1 billion worth of DOGE-inspired memecoins, such as AKITA, SHIB, and Dogelon Mars (ELON), to support COVID-relief efforts in India and other charitable causes. Buterin's donation had been deposited in his crypto wallet in an effort to convince traders that he was an investor.

Laser eyes:-

In 2021, a trend emerged on Twitter where Bitcoin supporters added “laser eyes” to their profile picture as a way to signal their bullish outlook on the cryptocurrency. The laser eyes meme was widely adopted by high-profile figures, including Tom Brady, Paris Hilton, Elon Musk, and others. It’s often associated with the hashtag #LaserRayUntil100K, indicating support for Bitcoin’s potential to reach a price of $100,000. While it may seem like a lighthearted trend, it underscores the growing mainstream acceptance of cryptocurrencies and their potential to become a major player in global finance.

Moon :-

Within the cryptocurrency trading community, the term “to the moon” or “mooning” is often used to describe strong upward price momentum of a particular cryptocurrency. This bullish expression reflects the community’s optimistic outlook for the asset and its potential to significantly increase in value. The term is often accompanied by rocket emojis or graphics, emphasizing the upward trajectory of the cryptocurrency’s price. While this term can be seen as overly exuberant, it reflects the high levels of enthusiasm that can be found in the volatile and unpredictable world of cryptocurrency trading.

Pump and dump:-

A pump and dump scheme is a coordinated effort to artificially inflate the price of an asset with the intention of cashing out before its value plummets. Cryptocurrencies with smaller market caps are particularly vulnerable to these schemes. Typically, a group of traders will collaborate to drive up the price of a specific small-cap altcoin. As prices rise, the schemers will promote the opportunity on social media platforms such as Twitter, Reddit, Discord, Facebook, and YouTube comments, among others, attracting more investors and driving the price up further. Once the asset reaches the target value, the original group will sell off their holdings, taking significant profits and leaving other investors with a devalued asset, hence the term "holding the bag."

Rekt:-

If you fall prey to FOMO and end up getting involved in a pump and dump scheme, you could end up getting "rekt" - a term originally used in gaming that has been adopted by the crypto community to describe a severe loss. When the scheme collapses, you may be left with a significant loss as the value of the asset plummets. It's essential to do your research and exercise caution before making any investments to avoid being rekt. Remember, the cryptocurrency market is highly volatile, and there are always risks involved.

Whale:-

In the world of cryptocurrency, large holders are often referred to as "whales." For Bitcoin, an individual or entity with more than 1000 BTC is typically considered a whale. These large holders have the potential to significantly impact the market with their trades, unlike the majority of smaller traders. As of mid-May 2021, the top 100 Bitcoin addresses, out of over 800,000 active addresses, controlled over 20 percent of all BTC, according to data from bitinfocharts.com. This concentration of ownership among a small number of individuals or entities can sometimes raise concerns about market manipulation and unfair advantages.

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Crypto trading can be a rollercoaster ride, with volatile market movements, sudden price fluctuations, and unexpected news events. While #technicalanalysis and market research are crucial components of successful crypto trading, another important aspect that is often overlooked is the role of emotions in trading decisions. Emotions like fear, greed, and FOMO (fear of missing out) can lead to impulsive decisions that can result in losses. In this article, we will explore how emotions can affect crypto trading and offer tips on how to manage them.

Fear and Panic Selling

Fear is one of the most common emotions that can impact crypto trading. When prices are falling rapidly, it can be tempting to panic sell in order to avoid further losses. However, this knee-jerk reaction can lead to selling assets at a low price and missing out on potential gains in the future. One way to manage fear in crypto trading is to have a clear strategy and stick to it. This can involve setting stop-loss orders or taking a break from trading during volatile periods.

Greed and Overtrading

Greed is another emotion that can affect crypto trading. When prices are rising rapidly, it can be tempting to jump on the bandwagon and invest more than originally planned. However, this can lead to overtrading, which increases the risk of losses. It is important to set realistic goals and limit the amount of capital allocated to each trade. Additionally, taking profits periodically can help manage the temptation to hold on to assets for too long.

FOMO and Impulsive Buying

Fomo or fear of missing out, is a common emotion in the crypto market. When prices are rising rapidly, it can be tempting to jump in and buy assets without a clear strategy. However, this can lead to impulsive buying and overpaying for assets that may not have long-term value. One way to manage FOMO is to conduct research and analysis before making a purchase. It is important to understand the fundamentals of an asset and assess its long-term potential before investing.

Conclusion

Crypto trading can be a highly emotional experience, and it is important to manage emotions in order to make rational trading decisions. Fear, greed, and FOMO can lead to impulsive decisions that can result in losses. To manage emotions in crypto trading, it is important to have a clear strategy, set realistic goals, and conduct research before making trading decisions. By managing  traders can improve their chances of success in the volatile and unpredictable crypto market.

#buildtogether #LearnCrypto #Binance #crypto2023

The cup and handle indicator is a technical pattern found on crypto price charts. It indicates the correction of a previous uptrend and eventually signals its resumption. The pattern exhibits clearly defined entry and risk levels but can be difficult to interpret in crypto markets due to fragmented volume metrics.

This trading guide explains the importance of the patterns and how you can formulate a strategic trading style to make the best out of it. We’ll be discussing the ins and outs of the indicator and to help you understand some of the limitations. 

What Is a Cup and Handle Pattern?

A cup and handle pattern is a consolidation chart pattern signaling bullish in which prices correct a portion of a previous uptrend, then rebound back toward the previous high, forming the “cup.” Prices then trade sideways, creating the “handle” which, when completed, signals a breakout to new highs.

The pattern was popularized by William O’Neil in his 1988 book, How to Make Money in Stocks. I learned to trade stocks 20 years ago using his methods, including the cup and handle pattern. This pattern is found a lot in the stock market and is beginning to appear frequently within the crypto market.

The cup and handle pattern can be found within a variety of time frames, from hourly, weekly to monthly charts. However, it is more powerful on daily chart time frames. There are a couple of variations of the pattern, but they all have a similar look.

Characteristics of the Cup and Handle Pattern

The cup and handle pattern appears after a big rally where the market needs to pause and catch its breath. The pattern consists of five key components, which then lead to a breakout higher.

The first four components help shape the structure for the pattern’s name because they form the outline of a cup with a handle.

Trading Heights

Strong uptrend to set up the potential pattern

Retracement of the previous rally

Rebound rally back up near the previous high

Drift sideways in pricing with a slant to the downside

5. Volume needs to increase on the rally of #3, but drift lower in #4 (more on this later)

After a big uptrend in price (#1), the market begins to correct lower (#2), shaping the first half of the cup. The dip in #2 generally retraces about 30–50% of the length of the previous uptrend. However, there are instances where a deeper correction may take hold. Once a bottom is formed, prices will begin to rally (#3). This rally pauses within 10% of the previous high. At this point, the cup portion of the pattern has been created. 

Now that prices are near their old high, bullish traders stop buying and wait to see if a breakout takes place. Traders who bought near the old high are thankful and nervous at the same time. They are thankful that prices have rebounded back to the old high, but nervous about another selloff. They are considered weak hands. Hence, selling the asset gradually, creating the handle (#4). 

However, the total volume begins to decrease as the market is running out of sellers. The price trend is from sideways to slightly lower, and it carves the handle of the pattern.

In the end, the pattern takes the shape of a coffee cup with a handle on the right side.

The pattern is confirmed when prices break above the high of the handle as the previous uptrend continues.

The cup and handle pattern cannot exist without a prior uptrend. As a result, the pattern is found frequently within the crypto market.

Types of Patterns

There are a couple of variations to this pattern that crypto traders need to be aware of. First, there are times when the handle portion of the pattern develops above the old high. This is considered the “high handle.” Secondly, since the market is fractal, these patterns will form on a variety of charting time frames, including intraday charts.

Cup and High Handle

One of the characteristics of the cup and handle pattern is that the handle must form within 10% of the old high. There are times when the market is extremely bullish and the handle pushes slightly above the old high but remains within 10% of it. These situations are considered to have a high handle.

Trading Heights

In the above example, we see a cup with a high handle. The handle forms above the old high, rather than below. The result of the pattern remains the same where it is a minor breakout higher, but then prices trade sideways on declining volume to form the handle. The pattern is confirmed when the market breaks above the highest price of the handle.

Intraday Cup and Handle

When William O’Neil first identified the cup and handle pattern, the focus was on daily chart time frames. Now that charting software has made access to intraday charts easier, variations of this pattern have emerged such that it can be found within intraday chart time frames.

Trading Heights

The intraday pattern operates similarly but concludes more quickly. In the Bitcoin example above, we are using a 4-hour chart. All of the necessary ingredients are present, including the volume spikes. During the retracement portion, you want to see increasing down in volume. On the rally portion of the cup, you want to see increasing volume. Then, during the formation of the handle, trading volume will ideally shrink as both buyers and sellers are shaken out.

The Bitcoin chart above also illustrates a high handle, which we discussed in the previous section. After the successful cup and handle portion of the chart, Bitcoin breaks out and accelerates higher.

Inverted Cup and Handle Pattern

The inverted cup is the reversal pattern indicating a momentum sell short signal signaling a bearish continuation pattern. The chart patterns happen within a span of three to six months and volume plays a role in the completion of the pattern and the confirmation of the breakout from an uptrend. At the same time, the inverted cup top is formed when there are more sellers bidding for the price to go down. When it happens, it indicates the end of the bull markets.

The inverted handle pattern forms when the asset emerges out and begins to fall from the right side of an inverted cup. However, a true inverted handle happens when it fails to break down and finally meets the support level and attempts to break to a newer low.

To spot a true inverted cup and handle pattern, the shape needs to be obvious and the trend line needs to curve up and then down like an upside-down cup. When this reversal pattern happens, it tells you that it is not a good probability to trade if pullback or correction is not on the way.

How To Identify the Cup and Handle Pattern

The cup and handle pattern starts with an uptrend, followed by a 30–50% correction. Use the Fibonacci retracement tool to measure out the previous uptrend, then look for the correction to retrace near the 30–50% zone.

Trading Heights

After the market has retracted into the 30–50% zone, look for a rally to begin pressing prices back toward the old high.

Trading Heights

As prices approach the old high, a failed breakout traps both recent buyers and buyers at the bottom of the base. Recent buyers see their small floating gain evaporate, and buyers at the bottom of the base fear a double top reversal.

Both sets of buyers exit the market; as a result of this entrapment, these buyers are nervous and slowly sell out, creating the handle of the pattern.

Tradung Heights

The handle must form in less time than it takes to form the cup. On most occasions, the handle will form in about 1/5 to 1/3 of the time required to form the cup. 

Additionally, the handle needs to stay in the upper half of the cup and not drop into the lower half of the cup’s price range. For example, if the cup forms between a price range of $1.0 to $2.0, then the handle needs to form within $1.50 to $2.0. If the handle pushes too low, then it will be ineffective at trapping short sellers.

An effective handle will drift lower, rather than trend lower. This sows doubt among short-sellers, who become nervous about the failed trend to the downside. As a result, they close out their positions, which adds a little buying pressure to the market, popping the price a little.

Then, new buyers enter the market as they see the technical setup complete, pushing the market above prior highs. This adds even more strength to the bullish trend.

How To Use the Cup and Handle Pattern

The cup and handle pattern is an effective combination to flush out weak holders. 

To trade the cup and handle pattern, wait for technical levels of resistance to break. There are two areas where traders can buy the resistance break. 

Trading Heights

First, draw a resistance trend line encompassing the high prices of the handle. A break at the resistance trend line is your signal to buy. The second opportunity to buy is a break above the high of the handle. Waiting for a break above the handle’s high is a more conservative approach, as you are seeking confirmation from the market that the price is hitting new highs.

The risk and stop loss on the trade will be set at the low of the handle. This way, if the breakout fails and falls back below the handle’s low, then you can close out the trade at a small loss and move on to the next opportunity.

If the breakout is successful, then you can consider moving your stop loss to the breakeven level, locking in the trade without experiencing a loss.

The target for the cup and handle pattern is fairly simple. Measure the distance from the cup high to the cup low and project that same distance beginning at the handle’s low point. So long as the handle remains in the upper half of the cup, this level of price projection leads to an attractive risk-to-reward ratio on the trade.

Case Examples

Here is an example of the cup and handle pattern in a Bitcoin chart from 2019. 

After rallying 25%, the market corrected lower approximately 50% on increasing bearish volume. Then, the market rallied to come within 3% of the previous high.

At that point, the cup of the pattern was completed and the handle was about to begin. The handle drifted lower on decreasing trading volume. The pricing of the handle remained within the upper portion of the cup, so all of the necessary ingredients were present for a bullish breakout.

Once the handle was finished, Bitcoin rallied higher on increasing volume, which led to new highs.

Below is another chart, a cup and handle example for Ethereum.

After rallying 300% to begin 2021, Ethereum began consolidating the uptrend to form the cup. The cup was relatively shallow, at nearly 30% of the previous uptrend. After correcting, the price rallied back to near the old high to finalize the cup.

As the handle began to develop, its slight downward slope, coupled with decreasing trading volume, was a big clue that this may be a minor consolidation. This was a relatively long handle, but once it had finished, Ethereum rallied on increasing volume.

Indicators To Identify the Cup and Handle Pattern

Aside from having a clearly defined pattern with specific entry and exit parameters, this chart pattern is a favorite among traders because it is simple to identify. There aren’t a lot of fancy indicators or technical tools needed to spot the pattern.

There are only four technical indicators needed to help you identify the pattern:

Support and resistance

Trading volume

Moving average on the trading volume

Trend lines

As you know by now, the pattern consists of two parts, the cup plus the handle. The pattern cannot be anticipated until nearly all of the cup is completed and the price is near the old high.

As a result, the trader will need to highlight the old high with a horizontal resistance line. Additionally, as the right side of the cup is created, we need to observe several bullish candles on rising trade volume. An easy way to figure this out is to place a 50-period moving average on top of the volume. 

This moving average indicates the average volume for the last 50 periods. You want to see several bullish candles with volume above the 50-period moving average, while most of the bearish candles remain below the moving average. If a large bullish and bearish volume candle are next to each other, you want to see the bullish candle display a higher volume than the bearish candle.

Once the cup is completed, the handle will begin to develop. The handle will be marked by sloping trend lines. These trend lines should have a slight downward slant to them. The important trend line is the resistance trend line, which is the top line. If prices break above resistance on rising volume, then the market will likely continue its trend higher.

Limitations of the Cup and Handle Pattern

Like any form of pattern and technical analysis, there are times when this predictor works well and other times when the forecast does not work out. There are situations when the reliability of the cup and handle pattern is diminished.

Check the Broad Market Trend 

The cup and handle pattern is the result of a bullish breakout. When the broad market is in a bullish trend, that makes the breakout a higher probability move. However, if the broad market is in a bearish trend, then a bullish breakout is less likely to occur. 

Bitcoin and Ethereum are the two largest cryptocurrencies, commanding approximately 60% of crypto’s total market capitalization. If both Bitcoin and Ethereum are in an uptrend, then the chance of a bullish breakout is higher. If both Bitcoin and Ethereum are in a downtrend, then a bullish breakout has a smaller chance of occurring.

Apply the Cup and Handle Pattern to Large and Growing Cryptocurrencies

A major limitation to the cup and handle pattern is evidenced when applying it to small cryptocurrencies that do not have a large following. The cup and handle pattern works best with cryptocurrencies that are growing their following. The more buying and selling interest that exists, the better the gauge of the pull between buyers and sellers. 

Overall Volume Makes a Difference but It May Be Difficult to Obtain

The trading volume of a crypto asset makes a difference in determining a cup and handle pattern. However, crypto trading takes place on many different exchanges — and even off the exchange. Therefore, arriving at an accurate volume figure is extremely difficult.

The Bottom Line

The cup and handle pattern has been around for over 30 years and is widely followed by many technical traders. Though limitations of the pattern are not to be ignored, the strong trends in crypto help make the cup and handle pattern effective in trading crypto markets.

#crypto2023 #buildtogether #technicalanalysis #educational #Binance

Divergence is a type of pattern found on crypto price charts that signals an upcoming shift in trend. Classic or regular divergence is found at the end of a trend, while hidden divergence is found at the end of a trend consolidation.

Both types of divergence appear frequently on crypto charts. Alert traders who spot them are able to see good investment opportunities.

What Is Divergence?

Divergence is a technical analysis pattern spotted on price charts when the price of a crypto asset is moving in the opposite direction of a technical indicator or moving contrary to other data. Divergence is a warning that the current trend is weakening and may change.

Divergence signals that a positive or negative price move may soon happen. Positive (bullish) divergence signals that prices may soon rally. Negative (bearish) divergence signals that prices may dip soon.

When positive divergence is spotted on trading charts, crypto traders who are currently short the asset will plan to exit and close their positions. Crypto traders who are flat or long the asset will prepare to position long or add to their long position since positive divergence signals a rally may soon begin. 

There are two types of divergence that can signal a bullish rally may soon begin. Regular or classic divergence is the most common type. Hidden divergence is a little more difficult to spot but can be a powerful pattern, signaling a shifting trend.

What Is Regular or Classic Divergence?

Regular divergence occurs when the price of a cryptocurrency continues higher and creates higher highs, but the indicator creates lower highs.

In the image above, Bitcoin continues to create new all-time highs in price. However, the Relative Strength Index (RSI) indicator is creating a series of lower highs. This is a bearish symptom of market momentum and suggests a trend change from up to down is about to begin.

The same thing can also happen in the opposite direction.

In the example above, Bitcoin is experiencing a correction and keeps carving lower lows in price. However, the MACD indicator creates higher lows, signaling the downward momentum has weakened and a bullish rally about to begin. Bitcoin goes on to rally approximately 20% in a couple of weeks.

What Is Hidden Divergence?

Hidden divergence is created when the price of a cryptocurrency carves a higher low, while the indicator creates a lower low. Typically a hidden divergence can also be categorized by a bullish or bearish hidden divergence.

For example, a bullish hidden divergence happens during a correction of an uptrend when the value of an asset makes a higher low. However, the oscillator is still showing a lower low. This usually translates that the bullish trend continuation signals trader to take profit.

Bearish hidden divergence, on the other hand, is the opposite. Meaning the value of an asset makes a lower high, but oscillators are showing a higher high. This signals a trend reversal in which a trader should stop loss and sell-off as soon as possible.

In the image above, Ethereum is consolidating and begins to grind sideways, creating a higher low in price. At the same time, the stochastic indicator points to a lower low. This is a bullish hidden divergence. It signals a rally is about to begin. Sure enough, Ethereum rallies nearly 90% over the next couple of weeks.

Hidden divergence can also signal a deeper correction.

After a feeble recovery from a May 2021 correction, Ethereum carves a hidden bearish divergence pattern. Ethereum displays a lower high on price, while the MACD indicator shows a higher high. This signals that a continuation of the downtrend may begin soon. Shortly thereafter, Ethereum fell 35% further.

When to Use Regular or Hidden Divergence

The difference between regular and hidden divergence is subtle. 

Regular divergence is typically found at the end of a long trend and signals a new corrective phase. Hidden divergence is typically found at the end of a consolidation phase and signals that the consolidation is about to end in favor of the original trend’s direction.

A regular divergence is used at the end of a long trend, while hidden divergence is used at the end of consolidation.

How Is Hidden Divergence Different?

Hidden divergence is different from regular divergence due to the location of the pattern. Hidden divergence tends to occur within an existing trend. It signals the end of a consolidation phase within the larger trend. We call it “hidden” because it isn’t obvious to the untrained eye.

 Above, we can see a strong uptrend within Bitcoin’s price. There are two instances of bullish hidden divergence in the middle of this uptrend. The first appears on February 4, 2021. The RSI indicator creates a lower low, while Bitcoin’s price creates a higher low. This signals the end of the small consolidation as Bitcoin rallies higher.

Then, between February 10 and February 14, another consolidation occurs. Again, RSI is forming a lower low, while Bitcoin’s price creates a higher low. This hidden divergence signals the end of that small correction and Bitcoin rallies further.

As the trend is tiring, regular bearish divergence appears, signaling that the trend may soon turn lower. Beginning February 19 to–21, Bitcoin’s price carves a series of higher highs. However, RSI is pointing lower highs at the same time, suggesting the momentum is very weak and a reversal is imminent. Bitcoin subsequently corrects 25% lower.

Hidden divergence will appear in both bullish and bearish directions. The examples above using Bitcoin are great illustrations of bullish hidden divergence.

An informed trader can also use hidden bearish divergence to help them identify when a continuation of the trend may continue lower. This is helpful when the crypto markets are experiencing a correction, though the average trader is uncertain if the correction will dig deeper.

Above, as Bitcoin is correcting lower in the latter part of March 2021, bearish hidden divergence appears. On the chart, you can see a higher high by using RSI, while we have a lower high on Bitcoin’s price during the same period. This is a clue that more losses are on the horizon. Shortly thereafter, Bitcoin’s price fell about 12% in two days.

How to Spot Hidden Divergence

Spotting hidden divergence can be tricky to the untrained eye. However, with some practice, you will be able to spot and trade the divergence in your favor. Hidden and regular divergence can be spotted on all crypto chart time frames, so you can find plenty of opportunities to practice spotting it on crypto charts.

One important ingredient for seeing divergence is using a technical indicator. Most oscillators (indicators) will work. But keep in mind that adding more oscillators to the chart does not equate to a more reliable signal. Choose the oscillator or charting tool that you’re most comfortable with. Regardless of the indicator chosen, that same indicator can help you identify both regular and hidden divergence.

In several examples above, we used RSI. In the following examples, we’ll illustrate using stochastics and MACD, which are two other common tools used to spot divergences.

Hidden Divergence Using MACD

Let’s start with the MACD indicator, which if you recall has three parts: 

MACD line

MACD signal line

Histogram

When using the MACD to identify divergences, you can utilize any of these three parts. You don’t need all of them to spot the divergence. For these illustrations, we’ll focus on the MACD line. I recommend thickening the MACD line on your chart so that it’s easier to see.

Next, determine the direction of the trend. If the trend is up, then we’ll look for bullish hidden divergence, which means the MACD line will print a lower low while the price prints a higher low. If the trend is down, then look for bearish hidden divergence, where the MACD line prints a higher high, but the price prints a lower high.

Here’s an example of a 1-hour price chart from March 2021. After bottoming on March 25, Bitcoin began to rally. Consolidation occurs between March 27–28. On March 28, the MACD line is printing lower lows compared to the March 27 value — and yet, Bitcoin’s price is higher. This is a setup for another rally. Once the consolidation ends, Bitcoin rallies about 9% over the next two days.

Spotting Hidden Divergence Using Stochastics

The stochastic oscillator (some charting packages call it slow stochastic) is a three-input oscillator that prints two lines. I usually use the input value of 15-5-5, but 14-3-3 is also useful.

Thicken the %K line so it’s easier to see on the charts.

Above, we can see Ethererum locked into a downtrend on a 1-hour chart in June 2021. From June 15–7, a hidden bearish divergence is spotted as the stochastic oscillator prints a higher high, while Ethereum carves a lower high.

This pattern suggests the consolidation of the previous downtrend is over, and that Ethereum may continue to fall. With the benefit of hindsight, we can see that the price correction in Ethereum accelerated lower as the cryptocurrency lost about 20% over the next two days.

Applying Hidden Divergence to Crypto Technical Analysis

Learning to spot hidden divergence patterns doesn’t have to be difficult — especially when you consider the frequency with which hidden divergence appears on crypto charts. Now that you’ve spotted the pattern, what do you do next?

Follow this step-by-step guide on setting up the trade.

Step 1: Filter Your Trades

Hidden divergence is a pattern that signals the end of price consolidation. With Bitcoin, it will signal a continuation of the previous trend. To get the most out of your trade, look for the hidden divergence pattern within the context of the larger trend.

For example, if the larger trend is up, then look for bullish hidden divergence. When you spot the bullish hidden divergence pattern, use it as a buy signal. Ignore bearish hidden divergence patterns in an uptrend.

Do the opposite in a downtrend: look for bearish hidden divergence, and ignore the bullish patterns. Once you see the bearish hidden divergence pattern, then look to sell.

You’ll receive a more reliable signal when the hidden divergence pattern is aligned with the direction of the larger trend.

Step 2: Place Your Stop Loss

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After you’ve spotted a hidden divergence trade that aligns with the larger trend, it’s time to plan out the trade’s parameters. Divergence patterns are great for signaling an upcoming trend change, but they can be less reliable when it comes to the timing of the trend change. Therefore, it’s important to give your trade room to breathe. You don’t want the normal movements of the market to stop out your trade.

After you spot the hidden divergence, place the stop loss just beyond the recent swing price extreme. In the case of bullish hidden divergence, place the stop loss just below the swing low where the buy signal shows up. In the case of bearish hidden divergence, place the stop loss just above the swing high where the sell signal occurred.

Step 3: Establish Your Target

As you know, crypto markets can trend at mind-blowing rates. Traders with dreams of endless profits will look to crypto and place open-ended trades with no exit plan. However, I would encourage you to think differently.

If you’re trading on shorter-term charts, i.e., 1-hour or 2-hour, consider a target where you can remove part or all of your trade. A good rule of thumb is to target at least twice the distance to your stop loss. So, if your stop-loss is 100 ETH, then target at least 200 ETH. If you’re fortunate and prices move in your favor, watch out for classic divergence that will signal a premature end to the trend.

Limitations of a Hidden Divergence

With a little practice, hidden divergence patterns can be found on a lot of crypto charts. However, there are a few limitations to be aware of.

First, divergence patterns are easy to spot in hindsight but potentially difficult to spot in real-time. This is because the emotional state of the market will get you excited about a bullish bump, only for you to find out later that this was a bearish hidden divergence setup. Try to keep your emotions out of the market. An emotional eye can bias your analysis.

Secondly, when hidden divergence appears late in a trend, risk-to-reward ratios aren’t as reliable. Most of the trend is over, and by the time you wait for the price to diverge from the oscillator, you’re entering into the trend at a worse price point.

Lastly, the price patterns for smaller cryptocurrencies may not be as reliable as the ones you’ll find with larger markets like Bitcoin and Ethereum. Fewer buyers and sellers are interested in a smaller market, leaving it more prone to volatility and bad tics.

Conclusion

Bullish and bearish hidden divergences are powerful patterns seen at the end of consolidation. They signal a continuation of the original trend. These patterns are frequently found within Bitcoin, Ethereum, and other crypto markets, making them easy to learn. 

However, spotting them in real-time can be challenging. Additionally, if hidden divergence is discovered late in the trend, the trade tends to be less rewarding. 

The key to success in trading hidden divergence is to filter your trades in the direction of the larger trend. Always analyze the market sentiment, and it is best a trend-following momentum indicator to confirm the signals.

#Binance #crypto2023 #technicalanalysis #educational #buildtogether

Pivot points are one of the most widely used technical analysis indicators in trading, including cryptocurrency trading. They are derived from the previous day's price action and are used to determine potential support and resistance levels for the current day's trading. In this article, we'll provide a trading guide for pivot points crypto indicator to help traders use this tool effectively.

Understanding Pivot Points

Pivot points are calculated using the high, low, and closing prices from the previous trading day. The basic formula is:

Pivot Point (PP) = (High + Low + Close) / 3

From the pivot point, traders can calculate several support and resistance levels for the current trading day. The most common levels are:

First Support (S1) = (2 x PP) - High

Second Support (S2) = PP - (High - Low)

Third Support (S3) = Low - 2 x (High - PP)

First Resistance (R1) = (2 x PP) - Low

Second Resistance (R2) = PP + (High - Low)

Third Resistance (R3) = High + 2 x (PP - Low)

Using Pivot Points in Trading

Pivot points can be used in various ways in trading. Here are some common methods:

Trend Identification: Pivot points can help traders identify the overall trend for the day. If the price is trading above the pivot point, it's considered a bullish trend, and if it's trading below the pivot point, it's a bearish trend.

Entry and Exit Points: Pivot points can be used to determine entry and exit points for trades. Traders can buy when the price breaks above the resistance level and sell when it breaks below the support level.

Stop Loss Placement: Pivot points can also be used to place stop-loss orders. For example, if a trader buys at the first support level, they can place a stop loss below the second support level.

Tips for Using Pivot Points in Crypto Trading

Here are some tips for using pivot points in crypto trading:

Combine with Other Indicators: Pivot points work best when combined with other technical indicators, such as moving averages or trendlines. This can provide more confirmation of potential support and resistance levels.

Use Different Time Frames: Pivot points can be calculated for different time frames, such as daily, weekly, or monthly. Traders should use the time frame that suits their trading strategy.

Watch for Price Reversals: Pivot points can be useful in identifying potential price reversals. Traders should watch for price action around the support and resistance levels and look for confirmation before entering a trade.

Conclusion

Pivot points are a popular technical analysis tool used by traders in cryptocurrency and other markets. They can help identify potential support and resistance levels, entry and exit points, and stop loss placement. Traders should use pivot points in combination with other indicators and different time frames to get a better understanding of market conditions. As with any trading strategy, it's important to practice proper risk management and use pivot points as a part of a broader trading plan.

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As per #technicalanalysis , ETH experienced a brief dip below the 200-day moving average, reaching a low of $1,408, before recovering slightly to trade closer to $1,450. However, despite this recovery, ETH/USD is still down by approximately 8.50% for the day.

The price of #Ethereum has experienced a significant drop of over 8.50% and is currently trading near $1,400 against the US Dollar. This decline puts ETH at risk of experiencing a larger drop towards $1,350 in the near future. Unfortunately, Ethereum's attempt to surpass the $1,560 and $1,565 resistance levels was unsuccessful. As a result, ETH formed a high near $1,570 and began a major decline, similar to that of bitcoin.

The bulls managed to hold the $1,500 zone for several days, but unfortunately, there was a sharp decline below this support level. The bears were able to push the price down by over 8.50%, causing it to fall below the $1,400 support level. As a result, a new monthly low was formed at around $1,391, and the #price is currently consolidating its losses.

According to #priceanalysis ETH is facing resistance at the $1,425 level, which is a positive sign. Additionally, there is a short-term contracting triangle forming on the hourly chart, with resistance at $1,425. The first significant resistance level is at $1,450, followed by the main resistance level at $1,500. If the price manages to break through this level, we may see a steady increase in value. In fact, it could potentially rise all the way up to the $1,570 resistance level.

Ethereum is currently facing a crucial challenge. It must surpass the $1,450 resistance level to avoid a downward trend. However, if it fails to do so, the price may continue to decline. In such a scenario, the initial support level would be around $1,350, followed by a major support zone near $1,300. If the price falls below this level, it could drop further towards $1,250. In the worst-case scenario, the price may even test the $1,200 level.

KEY LEVELS :

RESISTANCE LEVEL : $1,440-$1,480

SUPPORT LEVEL : $1,360-$1,320

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