This recent dip helped me clarify several trading principles and strategies. Notably, 5 min RSI convergence and divergence have proven to be effective at predicting reversals on short duration trades in a market with strong liquidity/volume, sideways price action (i.e. near a bottom, top, or clear pattern forming), and strong momentum. I had to publish this on a 15 min chart because TV wouldn't allow a 5 min chart to be published.
You can see that the breakdown circled was the result of converging price action between two major ascending trendlines that sandwiched a heavy resistance/support level at $7990. That period would have been ideal for smaller 5 min RSI trades using a pure RSI indicator strategy, but that would have been relatively low risk:reward as we can see that the breakdown would have potentially evened out any gains made during that period if you failed to exit at the appropriate time. However, noting the converging lines and tracking the price movement would have signaled a place to stop this trading as the profit opportunities would have dipped significantly below ~$200/BTC profitability. A pitchfork or redrawing of the sharp descending channel would have also indicated that a breakdown was possible given the triangle/bear flag formation coinciding with a failure to break out of a descending channel. This would have been a good short opportunity ~$7800-$8100 had I identified it due to the combination of a failure to break resistance and a very clear pattern converging to a likely breakdown with a measurable potential fall.
I'm mainly going to discuss the recent "bottom" (which is currently breaking down from a bear pennant/triangle) where I found many strong trading opportunities using RSI convergence/divergence, momentum, and drawing trendline support/resistance levels. Also, I've tried to identify proper stop-losses and relative position sizes to better manage risk. I haven't gone into much detail in the notes on the chart so this is still something I'm working on for myself as well.
In one day, you could have made 20+% holding very short duration positions using 5 min RSI convergence/divergence to minimize risk while maximizing returns. This isn't my exact trade history because I botched a few and missed a few others but I've documented what I could/should have been (or was) reading in the charts to plan and execute these trades so I'm better prepared for the next opportunity.
With trade 1 we could clearly identify $7k as a strong support level from previous history and order books. At the time this was only the 5th consecutive red 4 hr candle so this was relatively higher risk as an entry since no signaling of a bottom or reversal was detected. So this was a trade I missed and most probably missed because there was high volatility and the momentum was relatively weak. If you caught the bounce at $7050 and exited at $7200 you would have made about 2%. Given the higher risk on this trade a 1/2 normal position size might be warranted should the entry fail to generate the target profit, then the position could be turned into a swing or slightly longer duration trade (i.e. eventually the same exit would have been made).
On trade 2 I started to see a possible RSI convergence so entry with confirmation could have been made around $6900-$7000. I waited a bit longer for confirmation and entered at $7050, which cut some of my profitability, but I could have increased my position size by 25-50% having missed the first trade given stronger signaling here. An exit again around $7200 would have made this a 2-4% gain with strong momentum and overall short duration for holding a position.
(continued)
You can see that the breakdown circled was the result of converging price action between two major ascending trendlines that sandwiched a heavy resistance/support level at $7990. That period would have been ideal for smaller 5 min RSI trades using a pure RSI indicator strategy, but that would have been relatively low risk:reward as we can see that the breakdown would have potentially evened out any gains made during that period if you failed to exit at the appropriate time. However, noting the converging lines and tracking the price movement would have signaled a place to stop this trading as the profit opportunities would have dipped significantly below ~$200/BTC profitability. A pitchfork or redrawing of the sharp descending channel would have also indicated that a breakdown was possible given the triangle/bear flag formation coinciding with a failure to break out of a descending channel. This would have been a good short opportunity ~$7800-$8100 had I identified it due to the combination of a failure to break resistance and a very clear pattern converging to a likely breakdown with a measurable potential fall.
I'm mainly going to discuss the recent "bottom" (which is currently breaking down from a bear pennant/triangle) where I found many strong trading opportunities using RSI convergence/divergence, momentum, and drawing trendline support/resistance levels. Also, I've tried to identify proper stop-losses and relative position sizes to better manage risk. I haven't gone into much detail in the notes on the chart so this is still something I'm working on for myself as well.
In one day, you could have made 20+% holding very short duration positions using 5 min RSI convergence/divergence to minimize risk while maximizing returns. This isn't my exact trade history because I botched a few and missed a few others but I've documented what I could/should have been (or was) reading in the charts to plan and execute these trades so I'm better prepared for the next opportunity.
With trade 1 we could clearly identify $7k as a strong support level from previous history and order books. At the time this was only the 5th consecutive red 4 hr candle so this was relatively higher risk as an entry since no signaling of a bottom or reversal was detected. So this was a trade I missed and most probably missed because there was high volatility and the momentum was relatively weak. If you caught the bounce at $7050 and exited at $7200 you would have made about 2%. Given the higher risk on this trade a 1/2 normal position size might be warranted should the entry fail to generate the target profit, then the position could be turned into a swing or slightly longer duration trade (i.e. eventually the same exit would have been made).
On trade 2 I started to see a possible RSI convergence so entry with confirmation could have been made around $6900-$7000. I waited a bit longer for confirmation and entered at $7050, which cut some of my profitability, but I could have increased my position size by 25-50% having missed the first trade given stronger signaling here. An exit again around $7200 would have made this a 2-4% gain with strong momentum and overall short duration for holding a position.
(continued)