In this idea we will consider the bearish signal from RSI and how the bear trap occurred.
I strongly recommend you to read my previous idea where I explained why candlesticks with most buying/selling pressure form and why they create points and zones of interests, also strong resistances and support levels, plus psychological barriers. Understanding these conceptions is very important, because in this idea they will take their part.
Let's start with the bear trap: as you remember the price was mainly consolidating between two levels $8.500 resistance and $7.800 support. Below the $7.800 level there was zone of interest, which is $7800-7000 zone, I marked this zone in my previous idea. So when the price broke through the $7.800 level, the one found itself right inside of this zone, where Bulls took up control. But to determine the bull trap before it occurred is very difficult, because of several reasons.
1 reason - the bear trap is only after the fact phenomenon. (Even if you managed to determine it, the best thing you can do it's stay out of trading.)
2 reason is subdivided on Two main problems with zones of interests:
First - they might be too wide, and it's often required an additional analysis to be made, in order to find more certain levels.
Second - you can't be 100% certain who will appear with the interest, buyers or sellers.
That was useful experience, which you can use to determine traps in the future, but remember not to trade them!
Zone of Interest
Now let's talk about bearish sign from RSI:
In one of my previous ideas I was telling that during a downtrend the overbought zone for RSI is between 75 and 50 levels (on a daily chart). The Mid Term downtrend was determined by two crossovers:
1 bear. crossover occurred between 20 and 121 MAs (on daily)
2 bear. crossover occurred between 19 MA and the Price Chart (on weekly)
Also we had a confirmation from RSI on both Timeframes
(In some of my previous ideas I explained this in details)
So currently RSI is in overbought zone, it is a bearish signal. Also I must notice that during a downtrend RSI line never visited main overbought zone which is higher 75 level. It makes this signal pretty reliable. But what should bother you is a candlestick with the most buying pressure which formed recently. This candle might form strong support zone for the price. With such momentum it might even reverse the local trend and make a great retracement.
You should notice that RSI line might continue rising as well as the price, historically the 75 extreme level worked good for an RSI as a resistance.
The effectiveness of an Overbought zone of an RSI indicator during a downtrend
Plus there is always a risk of a reversal of a Mid Term trend, but for such phenomenon the price needs to breakthrough some very strong resistances $9,777 and $13,358, these levels are highs of two candlesticks with the most buying pressure, plus 121 MA might serve as a resistance too (in use with 20 MA you can avoid a fake breakout). These are main levels.
Conclusion: Based on the fact that we are in a Mid Term downtrend, we can take a signal from RSI and initiate short position. But I warned you about the risks, mainly represented by candlestick with the most buying pressure.
Thank you for reading this idea! Hope this information has been useful to you, maybe someone will turn it into profitable information)
Please hit the like button if you like the idea. Also share your charts and opinions 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.
I strongly recommend you to read my previous idea where I explained why candlesticks with most buying/selling pressure form and why they create points and zones of interests, also strong resistances and support levels, plus psychological barriers. Understanding these conceptions is very important, because in this idea they will take their part.
Let's start with the bear trap: as you remember the price was mainly consolidating between two levels $8.500 resistance and $7.800 support. Below the $7.800 level there was zone of interest, which is $7800-7000 zone, I marked this zone in my previous idea. So when the price broke through the $7.800 level, the one found itself right inside of this zone, where Bulls took up control. But to determine the bull trap before it occurred is very difficult, because of several reasons.
1 reason - the bear trap is only after the fact phenomenon. (Even if you managed to determine it, the best thing you can do it's stay out of trading.)
2 reason is subdivided on Two main problems with zones of interests:
First - they might be too wide, and it's often required an additional analysis to be made, in order to find more certain levels.
Second - you can't be 100% certain who will appear with the interest, buyers or sellers.
That was useful experience, which you can use to determine traps in the future, but remember not to trade them!
Zone of Interest
In one of my previous ideas I was telling that during a downtrend the overbought zone for RSI is between 75 and 50 levels (on a daily chart). The Mid Term downtrend was determined by two crossovers:
1 bear. crossover occurred between 20 and 121 MAs (on daily)
2 bear. crossover occurred between 19 MA and the Price Chart (on weekly)
Also we had a confirmation from RSI on both Timeframes
(In some of my previous ideas I explained this in details)
So currently RSI is in overbought zone, it is a bearish signal. Also I must notice that during a downtrend RSI line never visited main overbought zone which is higher 75 level. It makes this signal pretty reliable. But what should bother you is a candlestick with the most buying pressure which formed recently. This candle might form strong support zone for the price. With such momentum it might even reverse the local trend and make a great retracement.
You should notice that RSI line might continue rising as well as the price, historically the 75 extreme level worked good for an RSI as a resistance.
The effectiveness of an Overbought zone of an RSI indicator during a downtrend
Conclusion: Based on the fact that we are in a Mid Term downtrend, we can take a signal from RSI and initiate short position. But I warned you about the risks, mainly represented by candlestick with the most buying pressure.
Thank you for reading this idea! Hope this information has been useful to you, maybe someone will turn it into profitable information)
Please hit the like button if you like the idea. Also share your charts and opinions 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.
