Crypto Markets – Part II
In “crypto markets” part of crypto beginners series I will share with you different techniques of buying and selling, basic indicators and formations, important facts and observations.
Today topic – Trend lines and triangle formations
There is many different tools, indicators and chart formations. Today I will show you 2 of the most simple and also my favorite of them.
A market can only do three things – it can go up, it can go down, and it can go sideways. Trend Lines are an important trading tool for identifying and confirming the trend direction. They can also help predict areas of support and resistance and help traders spot important chart movements and significant price points.
A Trend Line is a straight line that connects a series of price points. The more price points the line touches, the stronger and more important the trend line is perceived to be. As a general rule, it takes at least three distinct points to confirm a valid trend line.
An Uptrend Line has an upward slope and is drawn by connecting three or more low points on a chart. Each low price point must be higher than the preceding low price point to form the positive sloping line. An Uptrend Line can act as support in a positive trending market. As long as prices continue above the Trend Line, the uptrend is considered intact. If prices break below the Trend Line, it could be an indication that the uptrend is coming to an end.
A Downtrend Line has a downward slope and is drawn by connecting three or more high points on a chart. Each high price point must be lower than the preceding high price point to form the negative sloping line. A Downtrend Line can act as resistance in a negative trending market. As long as price continue below the Trend Line, the downtrend is considered intact. If prices break above the Trend Line, it could be an indication that the downtrend is coming to an end.
How To Draw Trend Lines
When looking at a chart with a positive trend, start your trend line at the lowest possible charted price point. Then, extend the line until it reaches three points without violating other points of price action.
When looking at a chart with a negative trend, start your trend line at the highest possible charted price point. Then, extend the line until it reaches three points without violating other points of price action.
Triangles occur in uptrends and downtrends. Since they can be continuation or reversal patterns, traders wait for the price to break out of the pattern to indicate which direction it is going.
Since continuation triangles occur more often than reversal triangles, focus more on breakouts to the upside during uptrends and breakouts to the downside during downtrends.
To draw a triangle there needs to be at least two swing highs and two swing lows. Trendlines are drawn along the highs and lows, respectively, and extend out to the right. The price may make a couple more swings within the triangle. Re-draw the trendline, if needed, to accommodate these new price swings.
When the price moves above the upper trendline it signals the price is likely to move higher. The pattern is complete. If the price drops below the lower trendline it signals the price is likely to continuing dropping.
Symmetric triangles are created when both trendlines are moving towards each other.
An ascending triangle occurs when the lower trendline is rising while the upper trendline is horizontal. This shows that swing lows are rising but the rallies are stopping near the same resistance level.
A descending triangle is when the upper trendline is sloped downward, while the bottom trendline is horizontal.
With all three types of triangles, take a trade when the price breaks out of the pattern. The exact breakout price is subjective, as tiny alterations in how the trendline is drawn will alter the breakout price level.
Follow the weekly series for beginners.