Cardano is racing toward the Resistance Zone after a successful break to the upside from last week's bull flag, as predicted in our last analysis. We're getting closer to resistance and the big question is, do we short it?
How do we trade this? 🤔 If you're still in a long from bull flag breakout, good! Don't exit yet as we have not seen a reversal signal. ADA likely will make it to $0.45, I would take profits around that price area. Once we hit the resistance zone it's reasonable to expect a pullback or even a reversal. If we get a bear signal bar followed by a confirmation bar closing on or near its low, it's reasonable to short.
We are in a bullish macro trend, so a short would be playing the reversal where Probability is low, but Risk/Reward is over 1:2. I would take half profits at 1:1 around $0.422, move the stop loss up to your entry price and swing the rest until we see the reversal bar to the upside.
💡 Trade Idea 💡
Short Entry: $0.446 🟥 Stop Loss: $0.468 ✅ Take Profit #1: $0.422 ✅ Take Profit #2: $0.403 ⚖️ Risk/Reward Ratio: 1:2
🔑 Key Takeaways 🔑
1. Bull Breakout of 200EMA Followed by Bull Run. 2. Bull Flag Continuation Pattern Playing Out. 3. Resistance Zone Approaching, Look for Sell Signal. 4. Do Not Short Until Sell Signal and Bear Confirmation Candle Close. 5. RSI at 65.00, Above Moving Average. More Up Before Down.
⚠️ Risk Warning! ⚠️ Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
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ADA is continuing to the upside as expected! No sign of a reversal so we'll see what happens as we get closed to the Resistance Zone.
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As my analysis projected, ADA has touched the bottom of the Resistance Zone at $0.45! Now we need to see that sell signal candle followed by a confirmation candle to justify a short. Keep an eye on the 4HR candle for more detail, but we need a good bear candle closing on or near its low on the daily to maintain this analysis.
More updates to come as the price unfolds!
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Zooming into the 4HR chart, we can see the sell signals at Resistance #1. This is a perfect example of why we don't short sell signals alone, but wait for confirmation. We had there sell signals followed by a decent bear bar. But this was just a pullback after a strong leg up, not a confirmation and the price shot back up into the resistance zone. Let's see if the price fails to break Resistance Zone #1 this time around and if so, we again look for a strong bear candle closing on or near its low below the zone. Best to stick to the Daily chart for the signals to reduce a false flag.
More updates to come as they unfold!
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There we have it folks! A breakout of the Resistance Zone! The reversal setup never played out because we didn't get a confirmation to short below the Resistance Zone. Now that the breakout has shot the price up to $0.52, we're a great distance from the potential Support Zone (Formerly the Resistance Zone). That's where our protective stop would be if we longed. Best to wait for a pullback and show of Support before entering a long.
A fresh ADA analysis will be coming soon to address the next moves!
that zone just got blown into smithereens lol. Short to .40 then start buying again.
TraderEngineering
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@MaximusEndeavor, Sure did! ADA was not phased by that level. We don't have any good Short signals on the Daily timeframe right now. ADA is currently quite a ways above the Weekly 200EMA which is the most reliable resistance level at the moment. I think we have to wait and see how this Weekly candle closes and see where the Daily goes. I would be looking for a bounce on the previous Resistance Zone for another long, but I think we need more data before we can safely take a trade on this timeframe. Definitely zoom into the lower timeframes right now!
MarfieKnocks
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Why the hell would anyone short a market that has clearly changed the past few weeks? If your right, how many points can you make shorting compared to longing in a market like this? I really can’t see the logic. If there is a change on a pullback just let it play out and go long from the support. The reward is much better and the risk is much lower.
We have come out a bear run for a year. Very low prices and market goes up. Than people try to short a bottom? Wtf??
Not trying to flame you i can understand what the chart says and what you see. But the logic to me is a a riddle.
TraderEngineering
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@MarfieKnocks, Totally hear what you're saying, but the entire point of reversal trading is, well, trading a trend *reversal*! I'm sure you understand this but just so it's clear, the point of reversal trading is to enter as close to the trend top or bottom as possible to maximize reward and minimize risk. But this costs us in the third part of the equation; probability. That's because, as you pointed out for ADA, the evidence says "We're going up!", probability is on the side of the bulls, but you know what the bulls don't have in this time frame? Good Risk/Reward because they're so far away from proper stop-loss placement and start of the bull run. The longer you wait for evidence that the market is going in a specific direction, the further away your stop loss will be and the closer your take profit will be (to the next resistance zone) which means your risk is higher and reward is lower, but you have a higher probability of making money.
To your point about just longing pullbacks higher probability of profit etc, yes, you can just long the pullbacks and retain the higher probability variable in the equation. But I think there's a component to the equation that you're also missing; Position Size. It's not reasonable or mathematically sound to use the same position size at every pullback in a bull or bear run. Every leg up followed by a pullback *inherently" has a lower probability of profit because trends don't last forever and the longer they go, the lower the probability they will continue. That means our position sizes need to reflect that increased risk. This is the key MarfieKnocks, when reversal trading you can use your maximum size position because the reward is far higher than the risk because you're swing trading.
Swing Traders have lower success rates, but far higher profits relative to risk. They might hit their targets 30% of the time but they're hitting 1:2 - 1:4 Risk/Reward with their successful trades AND at their max position sizes (say 1% rule of totally account equity). What you're describing assuming we're discussing these matters on a single timeframe, is scalping which requires poorer risk reward (1:1 or lower) and smaller position sizes (proportional to the distance to the stop loss and max equity risk percentage), but much better probability.
This ADA analysis you're critiquing is a reversal analysis, how to look for the proper queues to enter a reversal trade and I've specifically illustrated how the chart *did not* meet the criteria for a reversal. In fact, if you read my conversation here in the comments with "voicesfspace", you'll see where I described how most reversal signal bars on their own fail and are actually statistically likelier to result in a continuation of the trend because most reversals fail (there's that low probability again) and most traders will long a bear signal bar knowing that there are Short stop loses right above them that will drive the market up further.
TraderEngineering
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@MarfieKnocks, Those traders are playing with smaller position sizes and using the higher probability. BUT, the reversal trader is likely fading (multiple trade entries starting with small positions and increasing their size at each resistance zone) their position until the reversal occurs, maximizing their reward, minimizing the risk, and sacrificing probability to do so.
My goal is to provide analysis to yes, help traders find trades but more importantly, how to trade a chart effectively, to understand context and the relationship between risk, reward, and probability.
As an aside, take a look at my previous ADA chart where I argue the approach you're arguing for here. Specifically, I argued to wait for a pullback to the 30EMA then long to the Resistance Zone because we're in a bull run and the bull flag (the pullback) was playing out:
As an illustration of a recent successful reversal trade I've executed, check out mat USDJPY analysis from November 5th when a Trend Ending Strong Bull candle touched a major resistance line and was followed by the first leg down in a bear trend. I recognized the signals and waited for confirmation, just as I described here in this ADA chart. ADA didn't give us the proper signals, USDJPY did, which is why I didn't take the ADA short but did take the ADA long to resistance.
USDJPY First Reversal Sign - November 5th:
USDJPY Short Outcome:
Apologies for the dissertation! This was both for you and anyone else who shared those concerns. I appreciate the comment and look forward to your thoughts!
MarfieKnocks
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@TraderEngineering, i really like your mathematical approach to this and thank you for your explanation. Again i was not trying to say your wrong just trying to understand the logic behind shorts in a bull market. I always try to keep trading as simple as possible without emotions. So for me it didn’t make sense. But yeah if you look at it from your perspective it makes sense. I think for now we can say ADA surprised us all bears and bulls. A big retrace would be healthy. I personally don’t short but i hope you nail it and have some nice profits. Good luck all!
TraderEngineering
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@MarfieKnocks, Thank you! I appreciate it if you read all of that lol Totally understand where you’re coming from. I prefer higher probability trades myself and only take reversals when the conditions are strictly met. ADA has surprised me with the last 12 hours or so. The Resistance Zone depicted in my analysis was a first line of defense ($0.45), the Weekly 200EMA or a little above ($0.50 to $0.55) was where I thought the buy pressure would give up. But here we are at $0.625! Completely agree, ADA is red hot and needs a retrace. Thanks again for the comment and I wish you well on your trades also!