Firstly I would like to remind that current trend is a Downtrend. This trend was mainly defined by the bearish crossover between 20 and 121 MA. There were also confirmations from indicators such as RSI and MFI. Plus my last idea where the Heikin-Ashi Chart was used to confirm the downtrend. Please read my previous ideas for more details. On those ideas I also explained how the indicators change their behavior when the Price has a particular trend (whether an Uptrend or a Downtrend). This is important to understand for this analysis.
It is also important to understand the nature of indicators that we will use. All the indicators you see on the Chart identify overbought and oversold zones. They base their assessment on where the price is currently trading relative to prior prices. The difference is that they use different calculations, but the approach is generally similar. This put some limitation on them - when the bearish sentiment overwhelms, which is typical during a Downtrend, the indicators can not correctly identify the oversold zone. (because more selling happening). Conversely, when the bullish sentiment overwhelms, which is typical during an Uptrend, the indicators can not correctly identify the overbought zone. (because more buying is happening). And this is why indicators such as RSI, MFI, Stochastic and some other carrying a name "Trend-Following". Because you use bearish signals during a Downtrend and bullish signals during an Uptrend. Let's finish at this point and go to the idea.
After the retracement occurred, we had had a Local Downtrend. In some of my previous ideas I explained that the zone around $8.700, which has been formed by the candle with the most buying pressure, was the only support holding the price from a further decline. You can see on the Chart that once this support has been broken the price went through the whole range formed by this candle. Also in one of my previous idea I explained on the Darvas Box theory, which prompted us that after the price was unable to pass through the main resistance (121 MA) the one will return to its previous box.
Currently the decline was stopped by the support zone around $6.700. Which might reverse the local trend on an Uptrend and let the indicators to get into the overbought zone. Nevertheless do not rely on supports during a downtrend, because they are weak. Plus the 20 MA currently working as a local resistance.
As has been said above we can't rely on supports and indicators to provide bullish signals, which gives us no clue if this local uptrend will continue. But we need to be ready to act efficiently in case this support brought enough bullish power to get the indicators into an Overbought Zone. Several tips on this:
-Firstly do not initiate short position once the indicator go into an overbought zone. Wait for the indicators go back from the overbought zone. The Stochastic's %D line will cross its 80 level from above. The RSI will cross its 50 horizontal level from above.
-Always pay attention to the Chart to see if price is close near some resistances, especially strong ones. The resistances work more efficient than supports during a downtrend and may reverse the price direction.
-I recommend you not to use MFI to provide any signals, because of its sensitivity. Use this tool as a confirmation for other tools.
Screenshot in addition: The performance of an overbought zone of the Stochastic indicator during a downtrend
Small notice: The MFI is believed to be a leading indicator, because it uses volumes for its calculation. It is a myth. The calculations of the MFI might serve unique only for short term situations. It will help you to define the price is overpriced, when the one is growing and there is no growing in trading volumes. But it can not define a new trend on its own, even the local trend. The point is that the MFI indicator is equal to other indicators such as RSI or Stochastic. Use these indicators together (because they have different calculations) and let them confirm each other. Never believe the MFI on its own, as well as the other indicators. More confirmations from different tools is always good.
Thank you for reading this idea! Hope this analysis has been useful to you and will help you to improve your own strategies)
Please if you like the idea hit the like button to support my this work. Also share your own Charts and Ideas in comments below.
Remember this analysis is not 100% accurate. No single analysis is. To make a decision follow your own thoughts.
The information given is not a Financial Advise.
It is also important to understand the nature of indicators that we will use. All the indicators you see on the Chart identify overbought and oversold zones. They base their assessment on where the price is currently trading relative to prior prices. The difference is that they use different calculations, but the approach is generally similar. This put some limitation on them - when the bearish sentiment overwhelms, which is typical during a Downtrend, the indicators can not correctly identify the oversold zone. (because more selling happening). Conversely, when the bullish sentiment overwhelms, which is typical during an Uptrend, the indicators can not correctly identify the overbought zone. (because more buying is happening). And this is why indicators such as RSI, MFI, Stochastic and some other carrying a name "Trend-Following". Because you use bearish signals during a Downtrend and bullish signals during an Uptrend. Let's finish at this point and go to the idea.
After the retracement occurred, we had had a Local Downtrend. In some of my previous ideas I explained that the zone around $8.700, which has been formed by the candle with the most buying pressure, was the only support holding the price from a further decline. You can see on the Chart that once this support has been broken the price went through the whole range formed by this candle. Also in one of my previous idea I explained on the Darvas Box theory, which prompted us that after the price was unable to pass through the main resistance (121 MA) the one will return to its previous box.
Currently the decline was stopped by the support zone around $6.700. Which might reverse the local trend on an Uptrend and let the indicators to get into the overbought zone. Nevertheless do not rely on supports during a downtrend, because they are weak. Plus the 20 MA currently working as a local resistance.
As has been said above we can't rely on supports and indicators to provide bullish signals, which gives us no clue if this local uptrend will continue. But we need to be ready to act efficiently in case this support brought enough bullish power to get the indicators into an Overbought Zone. Several tips on this:
-Firstly do not initiate short position once the indicator go into an overbought zone. Wait for the indicators go back from the overbought zone. The Stochastic's %D line will cross its 80 level from above. The RSI will cross its 50 horizontal level from above.
-Always pay attention to the Chart to see if price is close near some resistances, especially strong ones. The resistances work more efficient than supports during a downtrend and may reverse the price direction.
-I recommend you not to use MFI to provide any signals, because of its sensitivity. Use this tool as a confirmation for other tools.
Screenshot in addition: The performance of an overbought zone of the Stochastic indicator during a downtrend
Small notice: The MFI is believed to be a leading indicator, because it uses volumes for its calculation. It is a myth. The calculations of the MFI might serve unique only for short term situations. It will help you to define the price is overpriced, when the one is growing and there is no growing in trading volumes. But it can not define a new trend on its own, even the local trend. The point is that the MFI indicator is equal to other indicators such as RSI or Stochastic. Use these indicators together (because they have different calculations) and let them confirm each other. Never believe the MFI on its own, as well as the other indicators. More confirmations from different tools is always good.
Thank you for reading this idea! Hope this analysis has been useful to you and will help you to improve your own strategies)
Please if you like the idea hit the like button to support my this work. Also share your own Charts and Ideas in comments below.
Remember this analysis is not 100% accurate. No single analysis is. To make a decision follow your own thoughts.
The information given is not a Financial Advise.
