Purpose: Discovery, practice, and analysis of Bitcoin's 2021 mid-cycle dip for educational purposes.
Discovery objectives: Identify key takeaways of price action behavior after a significant pullback/correction.
Practice objectives: Use only simple trend lines and channels with support/resistance areas that follow price action in real-time and identify signals of trades.
Started out using the 2-point trend line on the 8h chart by choosing 2 points that just lined up and made sense to start off. The whip-lash moves made massive wicks and made a 2-point trend line very parabolic. I kept these lines as dotted lines to help visualize momentum strength and behavior. Breaking this first trend line eventually became a pretty good indication of when momentum was slowing down. When new price points came along after momentum cooled off, adjusting and making a new trend line was seemed necessary. In parabolic cases, a second trendline tested well for signaling a change, while in none parabolic trend changes, a second trendline could be made with more touchpoints and proved to be even more precise. I'm not interested in being wrong or right, I just want to be on the right side as consistently and quickly as possible.
With only a small margin of difference, set off by varying wick sizes, laying down the 2-point trend line seemed to work on just about every time frame. However, confirming signals on a longer time frame proved to be the most reliable in terms of confirming signal that a trend change has occurred. With the 8h candles being the sweet spot time frame for being both reliable and quick to get signal confirmation. The 12h and 1D body close give even stronger confirmation, while on the other end with shorter time frames like 1h/4h it gets riskier; greater opportunities calling it too early and displayed more opportunities to fall for fake-outs because there is more granular price action.
The channel that was put in early on appeared to have its own resistance strength once the price got in that area. It served well as a trend line by itself as price collided with it for a while(areas A and B). A pretty good fake-out even occurs on the 8h frame along the channel. Then after a dip, break out occurs to the upside on June 9th with a 1D candle close above the channel. Now that we're out of the descending trend channel, I believe this marks the beginning of a new ascending trend channel going forward. Today, the price tested that trend line and launched off it, sliced through our previous strong resistance like butter, and confirmed with a massive 8h candle close.
Key Takeaways:
1. There are fantastic trend indicators out there that will give you similar or much better results but I enjoyed the practice and hope this may provide value during correction/accumulation phases later on.
2. The larger the correction, the more whip-lashes and the greater their volatility.
3. Knowing which side to manage risk on is important and can really only be done if you have confidence in your time reference. Best to stay neutral.
4. Price action appeared to develop a pattern of big up and down swings bouncing off support/resistance areas while in the channel. After the confirmed crossing of the channel, price started behaving differently by passing through resistance levels with ease.
5. I believe June 9th marked the end of the descending trend and I think this week will be very interesting to see how it plays out from here.
6. Patience is key. Plan and execute with precision. Manage your risks.
Color Legend
Purple -- Multi-point support/resistance areas
Yellow -- 2-point trend line from ATH; cloned for the strong resistance line
Blue -- Descending trend channel
Orange -- Strong support line
Red/Green -- 2-point trend lines
Whip-lash - Points 1, 2, 3, 4, and 5
A and B - Areas of tests against the channel; more visibly seen at shorter time frames.
"Bringing the boat back" and testing previous resistance is still at play IMO. Watch out for more launches off the new ascending trend line.
I am a student of the market and welcome your feedback!
Discovery objectives: Identify key takeaways of price action behavior after a significant pullback/correction.
Practice objectives: Use only simple trend lines and channels with support/resistance areas that follow price action in real-time and identify signals of trades.
Started out using the 2-point trend line on the 8h chart by choosing 2 points that just lined up and made sense to start off. The whip-lash moves made massive wicks and made a 2-point trend line very parabolic. I kept these lines as dotted lines to help visualize momentum strength and behavior. Breaking this first trend line eventually became a pretty good indication of when momentum was slowing down. When new price points came along after momentum cooled off, adjusting and making a new trend line was seemed necessary. In parabolic cases, a second trendline tested well for signaling a change, while in none parabolic trend changes, a second trendline could be made with more touchpoints and proved to be even more precise. I'm not interested in being wrong or right, I just want to be on the right side as consistently and quickly as possible.
With only a small margin of difference, set off by varying wick sizes, laying down the 2-point trend line seemed to work on just about every time frame. However, confirming signals on a longer time frame proved to be the most reliable in terms of confirming signal that a trend change has occurred. With the 8h candles being the sweet spot time frame for being both reliable and quick to get signal confirmation. The 12h and 1D body close give even stronger confirmation, while on the other end with shorter time frames like 1h/4h it gets riskier; greater opportunities calling it too early and displayed more opportunities to fall for fake-outs because there is more granular price action.
The channel that was put in early on appeared to have its own resistance strength once the price got in that area. It served well as a trend line by itself as price collided with it for a while(areas A and B). A pretty good fake-out even occurs on the 8h frame along the channel. Then after a dip, break out occurs to the upside on June 9th with a 1D candle close above the channel. Now that we're out of the descending trend channel, I believe this marks the beginning of a new ascending trend channel going forward. Today, the price tested that trend line and launched off it, sliced through our previous strong resistance like butter, and confirmed with a massive 8h candle close.
Key Takeaways:
1. There are fantastic trend indicators out there that will give you similar or much better results but I enjoyed the practice and hope this may provide value during correction/accumulation phases later on.
2. The larger the correction, the more whip-lashes and the greater their volatility.
3. Knowing which side to manage risk on is important and can really only be done if you have confidence in your time reference. Best to stay neutral.
4. Price action appeared to develop a pattern of big up and down swings bouncing off support/resistance areas while in the channel. After the confirmed crossing of the channel, price started behaving differently by passing through resistance levels with ease.
5. I believe June 9th marked the end of the descending trend and I think this week will be very interesting to see how it plays out from here.
6. Patience is key. Plan and execute with precision. Manage your risks.
Color Legend
Purple -- Multi-point support/resistance areas
Yellow -- 2-point trend line from ATH; cloned for the strong resistance line
Blue -- Descending trend channel
Orange -- Strong support line
Red/Green -- 2-point trend lines
Whip-lash - Points 1, 2, 3, 4, and 5
A and B - Areas of tests against the channel; more visibly seen at shorter time frames.
"Bringing the boat back" and testing previous resistance is still at play IMO. Watch out for more launches off the new ascending trend line.
I am a student of the market and welcome your feedback!