Technical Analysis (TA)

Your main task is to learn how to consistently make money on the cryptocurrency market with the help of a Different view, different from the crowd.

What forms the basis and is an integral part of any trader? Of course, technical analysis (TA).

Technical analysis is a way of predicting price movements using charts. Charts show the history of price movement up to the current moment; from them we can see how the price reacted to certain levels, on the basis of which we can make a forecast for the future.

All technical analysis of stock trading is based on the assertion that history repeats itself in the market , so you can periodically observe the same type of events in similar trading situations. Such situations are called patterns. Patterns in trading are figures and models formed on the chart, which allow us to predict with high probability the further price movement in the market. In this guide, we will look at the main working patterns and tell you how to use them in cryptocurrency trading.

And now a little history:

History of the development of technical analysis

Although the founder of technical analysis is considered to be Charles Dow (1851-1902), whose works were later called the “Dow Theory”, the first mentions of technical analysis were much earlier...

→ Joseph de la Vega is a Spanish diamond merchant and financier living in Amsterdam, who at the end of the 17th century developed some provisions of those. analysis for trading on Dutch markets.

→ Homma Munehisa is a Japanese rice trader who, back in the 18th century, came up with a sequence of candles to visually depict price highs and lows over a certain period, which were later called “Japanese candles” and have been used for almost 300 years.

Well, let's start studying TA directly?

The basis of the fundamentals is the levels of support and resistance.

Support and resistance levels are special price benchmarks and strong zones, upon approaching which the price of an asset stops or changes direction.

• Resistance - a level is formed from above and does not allow the price to rise higher, providing “resistance”.

• Support - a level is formed from below and does not allow the price to fall lower, providing “support”.

Breakout of levels = a signal to continue movement in the current direction and strengthening of the trend, respectively. After a breakdown, a level retest is possible. A price rebound from Support/Resistance in the opposite direction indicates the weakness of the current trend movement and its likely “fading” and reversal.

Basic Important Indicators in Technical Analysis

1) Volume is the number of all transactions carried out over a certain period of time on the selected Time Frame. The graph looks like a histogram. An increase in volumes, as well as a decrease in them, indicates an increase and decrease in activity on the selected asset.

2) RSI (Relative strength index, relative market strength index) - An area of ​​70 and above signals overbought, and from 30 and below - oversold. Growth above 70 is a signal for an imminent reversal on the price chart in a downward direction, a fall below 30, on the opposite, upwards, respectively.

3) Also important indicators include Moving Averages - MA (its analogue EMA - exponential moving average), Stochastic, MACD, etc.

The most convenient use of the moving averages (MA) indicator:

MA50 - 50-day moving average.

MA200 - 200-day moving average.

→ “Golden Cross” or “Golden Cross” is a situation when the 50-day moving average (MA50) crosses upward the 200-day moving average (MA200), which is considered to be a bullish pattern.

→ “Death Cross” or “Death Cross” is the opposite situation when MA50 crosses MA200 from top to bottom, and this is a bearish pattern.

Such signals are generated with a delay.

Over time, each practicing trader chooses which tools are more convenient for him.

Now let's move on to the main part of our training:

Patterns in TA

Graphic patterns are divided into the following models: reversal, trend continuation and bidirectional. Reversal patterns indicate a likely change in trend (downward reversal in an uptrend and upward in a downward trend), trend continuation patterns indicate a likely continuation of the current trend in the same direction.

Let's start with the most common reversal patterns that actually work in practice.

Reversal Patterns

1. a) “Head and Shoulders” (HAS) - one of the best reversal structures (downwards), formed at the highs of an uptrend. On the chart it looks like a conventional “Head” and “shoulders” on the sides, and also has a “neck”.

b) A similar situation on the opposite side is called “Inverted Head and Shoulders” (IHAS) - a reversal structure (up), which is formed at the lows of a downward trend. On the graph it looks similar to the standard GUI, only inverted, respectively.

The development and confirmation of the pattern is a breakdown of the neck level.

2. a) Double Bottom/Top

→ A bullish pattern is formed on a downward trend - on the chart it looks like 2 approximately equal price lows.

→ A bearish pattern is formed in an uptrend - on the chart it looks like 2 approximately equal price highs.

Their variation of the “Adam and Eve” pattern is formed in the form of a VU pattern (a bullish setup in the form of an inverted VU pattern).

At the formation of the second Top/Bottom, a squeeze puncture may occur in order to remove stops (collect liquidity $) concentrated behind the first Top/Bottom.

In all cases, this is a strong reversal setup. Opening a position against the trend at the formation of the second Top/Bottom may be the best entry point just before the start of a corrective movement.

b) Triple Bottom/Top.

A more complicated structure, an analogue of “Double” patterns. On the chart it looks like 3 approximately equal price highs/lows and is an even stronger reversal setup.

The best entry point for a position is at the formation of the third Top/Bottom, but be prepared for an impulse squeeze in order to move stops beyond the previous highs and lows.

3. Three Movements Pattern

→ A bullish pattern is formed on a downtrend - on the chart it looks like 3 consecutive downward lows through which a trend line can be drawn.

→ A bearish pattern is formed on an uptrend - on the chart it looks like 3 consecutive rising highs through which a trend line can be drawn.

In practice, this Pattern is very often formed in conjunction with an ascending/descending Wedge and is a strong reversal structure.

Trend Continuation Patterns

They are formed during a correctional phase and, as the name suggests, indicate a likely continuation of the current trend movement (whether up or down).

The most striking representatives: Flag/channel, Rectangle, “Cup with handle” pattern.

1) Flag/channel

→ A bullish flag is formed on an uptrend - a correction in the form of a parallel “corridor” with decreasing highs and lows.

→ A bearish flag is formed on a downward trend - a correction in the form of a parallel “corridor” with rising highs and lows.

Priority for a breakout along the trend, after which a retest of the pattern is possible. Working out the figure in the opposite direction has a low probability.

2) Rectangle

→ A bullish rectangle is formed on an uptrend - a sideways trend in the form of a parallel “corridor” with approximately equal highs and lows.

→ A bearish rectangle is formed on a downward trend - a sideways trend in the form of a parallel “corridor” with approximately equal highs and lows.

Priority for a breakout along the trend, after which a retest of the pattern is possible. Working out the figure in the opposite direction has a low probability .

3) Pattern "Cup with handle"

→ A bullish pattern is formed on an uptrend - on the chart it looks like a cup real + U-shaped handle or in the form of a channel/flag/wedge/.

→ A bearish pattern is formed on a downward trend - on the chart it looks like a real Inverted Cup + U-shaped handle or in the form of a channel/flag/wedge/.

Has a strong priority for trend continuation. Breaking the figure in the opposite direction (reversal) is extremely unlikely .

Bidirectional patterns

Depending on the situation, they can either continue the trend movement or reverse it in the opposite direction.

The brightest representatives: Ascending/Descending Triangle, Wedge.

1. Ascending triangle with a flat top (bullish pattern) and Descending triangle with a flat bottom (bearish pattern).

Both in the case of a trend continuation and in the case of a reversal setup, priority is given to breaking through the “flat” side of the figure.

Breaking the pattern in the opposite direction and breaking through the inclined side of the triangle has a very low probability .

2. Wedge

→ The descending wedge has priority for working upward (both along the trend and during a price reversal).

→ The rising wedge has priority for working downwards (both along the trend and during a price reversal).

Breaking the pattern in the opposite direction and breaking through the inclined side of the triangle has a low probability, but such cases do occur.

"Symmetrical triangle" - Two-sided figure

A Different view singled out this figure separately from the rest, and this is not just like that. Regardless of the trend, the figure can either continue it or reverse it. The probability of a breakdown in one direction or another is approximately 50/50. This is one of the most dangerous figures in trading , because especially on it the manipulator likes to carry out his various frauds and manipulations.

Important point:

Absolutely every professional trader must understand that he is not the only one who sees the formation of a particular figure on the chart. A major player also sees everything and can deliberately execute false manipulations in order to collect crowd stops, which in fact is the very $$$ liquidity he needs.

Summarize:

In this guide, we looked at the main working patterns of Technical Analysis. I hope that you have studied all the information in detail and can now apply it in practice. A Different view believes in you - profit to all!

To be continued....