Application of short-term trend lines (support and breakthrough)
Before talking about the short-term application of trend lines, we must understand why trend lines can play a role of support and pressure.
Unlike a box, the reason why the box works is that it is a chip-dense area, so when the price reaches this position, there will be a large turnover.
However, the trend line is closer to the Fibonacci theory. Generally speaking, the support and resistance of the trend line are "consensus-based".
That is to say, a large number of retail investors will take profits on long orders and arrange short orders at pressure levels, and take profits on short orders and arrange long orders at support levels.
Let's first talk about going long at support and going short at resistance.
First of all, taking the current situation as an example, the three major mainstream currencies are about to hit the key support level soon.
Regarding going long at support levels, we need to make two things clear.
1. No matter if it is a long decline or a fast decline; no matter if it stops falling or not; no matter if it is a pin or a solid negative column. Go long when it hits the support line.
Similarly, no matter whether it is a rapid or slow rise, whether there is stagflation or not, short sell when it hits the pressure level.
But if there is no good pattern on the K-line, you need to be defensive.
2. If there is profit, take part of it quickly, and then make a plan for the rest. The reason is very simple. The long and short operations of the trend line are all based on consensus. You don’t know where your "allies", that is, other retail investors who have taken the same operation as you, will take profit. Then what you need to do is to close half of it when the profit and the "loss if the defense is triggered" reach 1:1.
Let's talk about the breakthrough order of support and resistance levels.
Here I also give two examples, one failure case and one success case.
Figure 1$XRP is a relatively successful case, 4h level breakthrough, the second 4h level K line fell back but did not break the trend line. Then it went up all the way, I entered the market at 2.4 and took profit at 2.6, which was a relatively ideal transaction.
Figure 2 $Ai16z is a failed case. I went long at 1.85 and set a stop loss at the lower edge of the descending wedge (1.75). In the end, it just hit my stop loss and pulled up. Then, after the 4h level entity broke through the descending wedge, I placed another long order at 1.85, thinking of closing it at the original price. Later, I didn't catch it and it went up all the way.
There is also a small episode here. When the price hit around 2.3, I cancelled my 1.85 order. Then a day later I found that the price fell back to around 1.8. At that time, I hesitated whether to buy more.
But I forgot where I saw it, but it said that the founder of this project was a bad person. He changed three high schools when he was in school and none of them wanted him. After graduation, he did a lot of bad things.
Then I thought about the continuous decline of Slothcoin after it was listed, and finally decided not to invest too much. Now I think that article really helped me, but I couldn’t find it later.
Okay, let’s get back to the topic.
There are several points to note when breaking through the trend line.
1. A downward trend line will always break through, and an upward trend line will always break through. So a downward wedge (a trend line pattern like ai16z) is more likely to break upward. On the contrary, an upward wedge is more likely to break downward.
2. Don't be anxious about the breakthrough order, you must wait for 8 hours. After the first 4h level K-line entity breaks through, the second 4h level K-line cannot be pulled back. If it is pulled back, the pattern will be invalid, and you should consider entering the short order instead.
Then the situation of XRP is perfect. The first 4h level K-line breaks through, and then the second K-line falls back. However, the second K-line closes above the trend line. At this time, you can open an order at the current price, and the defense is placed on the lowest point of these two 4h level K-lines.
But what if the K-line column of the entity breakthrough is relatively large, like in the case of ai16z? You can't chase it directly at this time, the reason is very simple - it's not easy to defend. So the reasonable operation plan is to place an order at a point below (half of this column), and the defense is at the lowest point of the current K-line. If the second K-line is pulled back to the inside of the trend line, stop loss.
3. If you miss this kind of order, don't feel sorry. Trend line breakthrough orders can be encountered every week. If the second 4h K line goes up or down directly, don't feel sorry.
The essence of trading is waiting, time, and opportunity.
4. If there is a profit in the trend line breakthrough order, sell part of it first, and try not to hold it for a long time. Because the breakthrough order, whether it is long or short, the position will not be very good in general.