1) Clear your mind of all the news, all the discussions, all the opinions about Bitcoin . It clouds your mind and confuses your judgement.
2) Look at the chart calmly and decide what pattern is forming. Where are the current resistance and support levels, the levels where the price tends to turn around and head back in the opposite direction? In the early stages of a pattern's development it can be hard to identify these levels with any degree of certainty. See how in this chart I posted 3 weeks ago, I was still toying with four different possibilities:
3) As the pattern develops it becomes easier to choose one probable interpretation. In this case, it was developing into a "broadening triangle", the shape of a megaphone, a relatively unusual pattern which is not particularly reliable. It is neither nor , but it does at least allow us to define where the are strongest (the blue dotted lines in my main image at the top of this post).
4) Once the dotted lines were established, a decisive move above the top line would be a breakout worth buying. Breakouts often fail (and you can see the first attempt failed in this case before the "real" breakout succeeded). Trend followers like me make our money by making big profits on the breakouts that succeed and exiting the failed breakouts quickly with a small profit or a small loss. The few big profits outweigh the many small failures. This technique is proven conclusively to work across all markets in numerous academic studies and backtests.
I stick mostly to 'classical charting' - the simple tried-and-tested patterns first talked about in early books, a hundred years ago. I use these because, again, numerous academic studies have proved these patterns can give you an edge in the markets. The same is sadly not true for some more recently-developed TA techniques.
I hope I've covered everything there. I'm always happy to answer any questions. And of course I go into a lot more detail in my new book, The Crypto Trader, available for pre-order on Amazon (and released on May 20).
You can see in the image below that after a big initial decline, the Head & Shoulders was failing to lead to further declines. The triangle shown by the orange dashed-lines formed, but I wasn't prepared to buy back in until the triangle resolved itself to the upside. I put in a stop-buy order and once that breakout began, my order was filled at the point indicated by the green arrow.
I waited until the breakout before buying back into BTC because there was always a possibility that the triangle would breakout to the downside instead and lead to a further price collapse. This way I was able to buy into the initial strength of the breakout and see a big profit quickly.
Published by Harriman House.
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