There was a newbie who entered the circle with the dream of "getting rich overnight" and stepped into this cryptocurrency circle known as "one day here, ten years in the real world".
Full of confidence, I recharged tens of thousands of dollars, fantasizing that the money would skyrocket more than ten times after all the money was in, and then I could withdraw the money and embark on the path of enjoying my retirement life, experience the life of a "rich person", and become an envied nouveau riche.
However, when he opened his eyes, he saw that his account had been cut in half by 40%, and his heart exploded...
Relax, let's get down to business
Okay, let’s stop talking nonsense, relax and start today’s teaching.
The above image is a basic version of the BTC contract chart on Binance's desktop platform.
1. Understanding the 'candlesticks' on the chart.
First, you will see a bunch of red and green candlestick charts on the chart. It looks like a rainbow trend line, but it actually has rich meanings behind it. Each candlestick represents the market trading situation over a period of time, such as 1-minute candlestick, 5-minute candlestick, 1-hour candlestick, etc., depending on the time frame you set.
The construction of each candlestick is very simple:
This is an illustration of a bullish candlestick.
This is an illustration of a bearish candlestick.
Some candlesticks have thin 'shadows' above and below; this is called a shadow, which represents the price fluctuation range during a certain period. The upper shadow represents the highest price reached, while the lower shadow represents the lowest price reached.
2. Moving Averages (MA) and EMA.
Next, we often see some moving averages on the chart, abbreviated as 'MA', which is also a very important technical indicator. I prefer to use 'EMA' - Exponential Moving Average.
MA (Moving Average): For example, MA7 represents the average closing price of the last 7 candlesticks.
EMA (Exponential Moving Average): Compared to MA, EMA places more emphasis on recent price changes and reacts more sensitively to the latest price changes.
The role of moving averages is to smooth out price fluctuations and help us identify market trends. Generally, when the price is above the moving average, the bulls are dominant; conversely, when the price is below the moving average, the bears are dominant.
But this is only part of the technical indicators; chart information is far more than this.
3. The relationship between the chart and technical indicators.
Many people mistakenly believe that technical indicators represent all the information on the chart. In fact, technical indicators are derived from the transaction data on the chart, while the essence of chart information is orders and transaction results.
Specifically, the market data consists of the flow of funds, open orders, and filled orders in the market. The flow of funds is influenced not only by market sentiment but also by various complex factors such as news and investment demand.
In simple terms, news and sentiment will be reflected on the chart, which ultimately affects technical indicators. For example, funds entering the market will affect orders, and the results of those orders will be reflected in the candlesticks and trading volume, thereby influencing the calculation of technical indicators.
For retail investors like us, all external factors will ultimately be reflected on the chart. Therefore, there is no need to pay too much attention to changes in news; returning to the chart for analysis is often more direct and efficient.
Switch to the TradingView chart: Let's start with 'naked candlesticks'.
Alright, let's switch to the TradingView chart for further analysis.
(The above is the TradingView chart on Binance's desktop version.)
I usually clear most technical indicators and only keep the candlestick chart. Why? Because I find that many times, technical indicators (like moving averages) are too rigid, and it may be because I haven't fully understood their complexity, but basically, I rely solely on naked candlestick charts to analyze the market.
Technical indicators are essentially a derivative of chart data, and too many indicators may cause you to get lost in a pile of complex data. Especially in actual operations, naked candlestick charts allow me to see market fluctuations and trends more directly.
We are 'hunters', not 'prey': How to hunt in the chart?
Comparing trading to hunting, the chart is like a vast 'forest', and the 'prey' is the suitable trading point we want to capture. The funds in your hand (U) are your 'bullets', and how to act at the right moment is like a hunter waiting for the right time to take a precise shot.
Specifically:
Consolidation range (ambush): In a market where there is volatility or sideways movement, we are like hunters lying in wait. The market does not have a clear direction in these ranges, and you need to wait for a clear breakout signal.
Support and resistance levels (hidden prey): Support and resistance levels are like prey hidden in the jungle. Prices may encounter a rebound (support level) or a pullback (resistance level) in these areas. By observing whether prices react near these key levels, we can capture the upcoming price fluctuations.
Breaking and breaking through (firing): When the price breaks below the support or breaks through the resistance, it is the time for you to 'fire'. After a breakout, the market trend may accelerate, and you should decisively take action and choose the right entry point.
Support and resistance levels: Definition and application.
When it comes to support and resistance, these two concepts are probably the most common in trading. They represent respectively:
Support level: When the price drops, the market finds support at a certain price level, and it is not easy for the price to break below this level. It can be seen as the 'bottom' of the market; once broken, it may trigger a larger decline.
Resistance level: When the price rises, the market encounters selling pressure at a certain price level, and it is not easy for the price to break above this level. It can be seen as the 'ceiling' of the market; once broken, the price may continue to rise.
The key to support and resistance levels is that the market price repeatedly tests these areas; if it repeatedly fails to break through or break down, it indicates that these price levels have strong 'market memory' and are important references for future operations.
Support and resistance are determined by the various peaks and troughs formed by the candlesticks on the chart. The more contact points there are, the more the market has validated this level, indicating high effectiveness!
How to draw support.
The drawing of support can either focus solely on the candlestick body or include the shadows; different methods of drawing have different effects.
If it's a real trading operation, it is recommended to place the support below the body, with the lower shadow as an excellent buying zone for a pin bar operation.
If you set a stop loss, the support should include the lower shadow, and then place the stop loss below the support.
When the price effectively breaks below the support, that support will turn into resistance (support and resistance swap positions).
How to draw resistance.
The drawing of resistance can either focus solely on the candlestick body or include the shadows; different methods of drawing have different effects.
If it's a real trading operation, it is recommended to place the support above the body, with the upper shadow as an excellent buying zone for a pin bar operation.
If you set a stop loss, the support should include the upper shadow, and then place the stop loss above the resistance.
When the price effectively breaks through, that resistance will turn into support (support and resistance swap positions).
Trend analysis and trendline drawing.
A downward trendline is drawn by connecting two or more relative highs, and it needs to be decided whether to include the shadow parts depending on the situation.
The downward trendline acts as a moving resistance to watch; the closer the price approaches the trendline in a downward trend, the higher the cost-effectiveness of going short.
When the price enters a consolidation range and breaks through the downward trendline, or when a reversal occurs and effectively breaks the downward trendline, that trendline generally becomes invalid.
The stop loss is generally placed above the trendline. Adjust according to position size or risk tolerance.
An upward trendline is drawn by connecting two or more relative lows, and it needs to be decided whether to include the shadow parts depending on the situation.
The upward trendline acts as a moving support to watch; the closer the price approaches the trendline in an upward trend, the higher the cost-effectiveness of going long.
When the price enters a consolidation range and breaks below the upward trendline, or when a reversal occurs and effectively breaks the upward trendline, that trendline generally becomes invalid.
The stop loss is generally placed below the trendline, adjusted according to position size or risk tolerance.
That's the content of my tutorial for this session. If there are any errors in the tutorial, please feel free to leave comments for discussion.
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