Becoming A Deadly Trader

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Chapter 3

Technical Analysis

Technical analysis is the framework in which traders study price movement. The theory is that you can look at historical price movements and determine the current trading conditions and potential price movement. The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price. Since price reflects all the information that is out there, then price action is all you really need to make a trade. With crypto, some news spreads like wildfire and can affect the price action of different cryptocurrencies.

Have you ever heard the old saying “history tends to repeat itself”? Well, that’s exactly what technical analysis is all about – studying price action history and looking for certain repeatable patterns. If a price level was held as a key support or resistance zone in the past, traders will keep an eye out for it and base their trades around that historical price level. Technical analysts look for similar patterns that have formed in the past and will form trade ideas and systems with the belief that price will act the same way that it did before.

Traders use candlestick charts because they are the easiest way to visualize historical data. You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities. Now, as I mentioned in a previous section, if you blindly buy any crypto pair and hope to make a profit, you will have approximately a 50/50 chance that you will profit or lose instead. However, as a trader your goal is to try to use technical analysis to increase your chances of being right.

To become a successful trader, you need to understand that trading is a game of probabilities, never certainties. No one, not a single person knows whether their next trade will be a winner or loser. There is no golden strategy that will allow you to predict the future with 100% certainty. Your goal as a trader is to develop a trading system where you have a statistical edge over the markets. This means that, while you will never be able to predict the outcome of any one trade, you will know that in a larger sample of say 100 trades you will always be profitable. As long as you’re able to develop a winning system, manage your risk properly, and stick to your rules without letting emotions get a hold of you, you will be able to make money with crypto for the rest of your life.

Three Axioms of Technical Analysis

Market prices discount all known information.

Market price is a reliable measure of collective human psychology.
Market price is a leading indicator of all fundamental data (ex. economic & political news).
Relying on fundamental news always causes you to react too late.

Prices move with the trend.

Uptrend – probability for prices to move higher.
Downtrend -> probability for prices to move lower.
Trading with the trend gives us a statistical edge over the markets.

History repeats itself.

The market is not completely random.
There are certain repeatable patterns that we can exploit.
By studying chart patterns and using indicators, we can anticipate the probability of future price movements.

Reading Candlestick Charts

Price is reflected in candlestick patterns. As a day trader, you should focus on the 15- minute candles but also look at the hourly candles. Regardless of the time frame, certain rules apply when reading candlestick patterns.

Here is a picture of BTC/USDT on the 3-minute time frame. As you can see, this is a candlestick chart. It displays the same price information as a line chart in a clearer graphic format. Candlestick charts are easy to interpret and easy to use. Your eyes adapt almost immediately to the information in the bar notation. Candlesticks are also good at identifying market turning points such as reversals from an uptrend to a downtrend or a downtrend to an uptrend. We will cover this more in depth later.

On the chart, each candlestick includes an open, high, low, and close price for the time frame. You are able to see the timeframe of each candle. For example, the chart above is set at a 3-minute timeframe, which means that each of the candlesticks represent 3 minutes of price action. In this case, every three minutes a new candlestick is created, and it takes three minutes to complete before another one begins. Candlesticks show the current price, whether the price moved up or down over the time frame, and the price range the currency pair covered in that time. Now let’s learn to analyze a candlestick.

If you take a look at these two candlesticks, you will see a figure in the shape of a rectangular box. This is what is known as the body, which is the widest part of the candlestick. This is the first step of how to read candlestick charts. This body demonstrates the open and the close of the specific period. This implies that if the chart is a 1-hour chart, for example, then every candlestick body will demonstrate the opening and closing price for that one-hour period.

In addition, the thin lines above and below the body are called “wicks” or “shadows.” The wicks at the bottom and at the top of the candlestick present the lowest and the highest prices reached during that one-hour period of time.

Furthermore, the color of the body tells you whether the candlestick is bullish (meaning that it rises) or bearish (meaning that it falls). If the body is green, then the currency pair closed higher than it opened. If the body is red, it means the currency pair closed lower than it opened.

Open Price: the open price depicts the first traded price during the formation of the new candle.
High Price: the top of the upper wick. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle.
Low Price: the bottom of the lower wick. If there is no lower wick, then the low price is the open price of a bullish candle or the closing price of a bearish candle.
Close Price: the close price is the last price traded during the formation of the candle.

Support and Resistance Zones

As a trader, you always have to pay close attention to price action. In trading, price is king, and it will tell you all you need to know. The wonderful thing that all markets have is a history. The markets will tell you where the sweet spot is on the chart. These sweet spots will be the foundation for everything you do as a trader.

A sweet spot on the chart is a support or resistance zone. You may be familiar with the concept of support and resistance; however, support and resistance zones are different from what many traders characterize as support and resistance. A support zone is an area or range of prices that a currency pair struggles to go below. A resistance zone is an area or range of prices that a currency pair struggles to go above. I will call these support and resistance zones by one word – zones. The eight important characteristics of zones are as follows.

Zones are an area, not a price point.
Zones are like fine wine; they get better with age.
Zones are spots on the chart where price reverses, repeatedly.
Zones may be extreme highs or lows on the chart.
Zones are where traders find trading opportunities.
Support and resistance zones rarely need to be modified.
Line charts can help traders find zones.
Zones are often seen by many traders.

You may want to take a closer look at each of these eight characteristics. It is incredibly important that you understand how to draw zones, why you should draw zones on your charts, and understand when these zones become critical for your trading.

In the chart below, I have an example to give you a visual understanding of zones. The green rectangular area drawn on the chart is a resistance zone, since price struggles to go over the zone multiple times before reversing back down. In this case, price finds resistance on the zone at least five times, which means that this is a valid resistance zone. Price must fail to break through a support or resistance zone at least three times before the zone is considered to be valid. The red rectangular area drawn on the chart is a support zone, since price struggles to go below the zone multiple times before reversing back up.

When you have identified your major support and resistance, you can form another level in between your zones to find your entry options and accurately measure your gain/loss ratio.

Using the example from the photo above, after the price failed to break through this resistance zone for the third time, we could have “shorted” the currency pair to make a profit by predicting the price of the currency was going to fall. This is the most basic way that you can make money trading a resistance zone, betting that the price will go down after failing to break above it.

Using the same example from the photo above, after the price failed to break through the support zone for the third time, we could have “went long” on the currency pair to make a profit by predicting the price of the currency was going to rise. This is the most basic way that you can make money trading a support zone. Support zones are some of my favorite zones to take entries. Now, let’s take a closer look at a support zone.

In the chart above, you can see a support zone depicted by the pink line. We know this is a support zone because price struggles to go under the zone multiple times, before reversing back upwards. In this case, price touched the zone at least four times without being able to break below the zone, which means that the zone is valid. After the third test of the support zone we could open a long position, expecting the price to reverse and go back up. Never mind the red or green lines right now, we will talk about those later.

A problem you may incur when dealing with zones is that it often becomes very difficult to determine precisely where a zone should be drawn. Please understand this is the nature of the zone. Zones are meant to identify an area on the chart, and not a specific point. Remember that you do have some leeway in drawing your zone. It’s not essential to nail down the zone to a specific price point on your chart, but rather it is important that you identify the area on the chart where you will look for a reversal. The touches on the zone will not be perfect. Some touches will come close to the zone, other touches will extend deep into the zone.

One thing you will notice about both of these charts, is that there are times when price goes below a support zone and then comes back above it, or times when price goes above a resistance zone and then back below it. This is completely natural, and does not mean that the zone is broken. If a candle closes beyond the limit of a zone, you should only consider the zone to be broken if the candle that immediately follows the first candle also closes beyond the limit. So, if a candle closes beyond the limits of a zone, be patient because price may come back into the limits of the zone.

It is crucial to note that once a resistance or support zone is breached, the roles of the resistance and support flip. If the price of a currency manages to break below its support zone, the same support zone will then become the new closest resistance zone. Conversely, if the price of a currency breaks above its resistance zone, that same resistance will become the new support zone.

Trends and Trendlines

Many traders are familiar with horizontal support and resistance zones, but some traders find it difficult to use trend lines, rightfully so, since trendline analysis requires a little more discretion on the part of the trader. Trendlines are useful in helping you determine the trend, as well as the strength of that trend.

If you follow the trend, half the battle is already won. When the price is in a trend, the probability that the price will move in the direction of the trend is higher. There are three phases in the market: uptrends, downtrends, and consolidation. The combination of the three phases completes one market cycle.

Uptrends

On an uptrend, there is a higher probability that prices will go up. An uptrend is defined by higher highs and higher lows. In an uptrend, you must buy the dip, never buy the high.

In general, we always want to go long on an uptrend, when the price dips. We never want to buy at the swing highs because we know that the price must eventually dip before continuing to move higher.

Downtrends

On a downtrend, there is a higher probability that prices will move lower. A downtrend is defined by a series of lower highs and lower lows. In a downtrend, you must short sell the rally, never short at the low points.

We always want to sell, or go short, on a downtrend. The ideal place to sell is when the price has a rally upwards. We never sell at the low points because the market tends to rally up before moving back lower.

Consolidation

In a consolidation pattern, prices move sideways between a support zone and a resistance zone. Support & resistance represent key price levels where the forces of supply and demand meet. Eventually, price breaks out of the consolidation. We never know until it happens.

In the trading strategies you’ll learn later in the guide, you’ll see that I prefer to trade with the trend than to trade in consolidation ranges. I just wanted to give you an idea of the three market phases for you to be able to understand market conditions when doing your technical analysis. When you are looking to make a trade in any currency pair, you first need to identify if the currency pair is in a downtrend, an uptrend, or a consolidation. You do not want to take a long position in a downtrend, nor do you want to take a short position in an uptrend.

Market cycles

A market cycle is a combination of all three market phases. First, a market consolidates. Then, a market breaks out either in an uptrend or a downtrend (during this breakout is the best time to go long or short, once the trend has been identified). After an uptrend or downtrend is exhausted, there is a trend reversal, which leads to another consolidation period before the next breakout. This is a market cycle. Now that you have seen the three market phases, let’s take a look at a few photo examples of market cycles.

This is the same photo with and without text. Take a look at how the price consolidates, then breaks out into a downtrend, then reverses to an uptrend. It is likely that after the uptrend, the price will revert to a previous support or resistance zone. If you can identify these market cycles and trade precisely within them, you will be more consistently profitable. Here are some more examples of market cycles.

Drawing Valid Trendlines

Now that you know the three market phases, let’s talk about trendlines. A trend line is a straight line that connects two or more price points and then extends into the future to act as a support or resistance zone. Many of the principles applicable to support and resistance zones can be applied to trend lines as well.

An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Note that at least three points must be connected before the line is considered to be a valid trendline. Uptrend lines act as support and indicate that net-demand is increasing even as the price rises. As long as prices remain above the trend line area, the uptrend is considered solid and intact. A break below the uptrend line area indicates that net- demand has weakened, and that a trend reversal could happen.

In this BTC/USDT chart, you are able to see a clear uptrend. This trendline is connecting the lows of the currency pair, showing us that price is trending upward. This trendline serves as a dynamic support zone because the support levels move up as the trend also moves upwards. As you can see in the photo, price tested the trendline multiple times without breaking it, and proceeded to reverse back up each time. Once price fails to break through the trendline for the third time, we know that the trendline is valid and we can start going long on future price tests because we know there is a high probability of a price reversal.

Now let’s talk about downtrend lines. A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Remember that at least three points must be connected before the line is considered to be a valid trendline. As long as prices remain below the downtrend line area, the downtrend is solid and intact. A break above the downtrend line area indicates that net-supply is decreasing and that a trend reversal could occur.

In this BTC/USDT daily chart, you can see a clear downtrend. You can see that I drew two trendlines, ignore the bottom trendline that’s connecting the lows for now, and only focus on the downtrend line at the top. This downtrend line serves as a dynamic resistance zone because the resistance levels are moving down as the trend also moves downwards. As you can see in the chart, price tested the downtrend line multiple times without successfully breaking it and proceeded to pull back down each time. After the third failed trendline test, we could have started to short this currency pair because there is a higher probability of a reversal.

As you can see, this example has two lines because price has formed a channel – a descending channel to be more specific. A descending channel is the price action contained between two downward sloping parallel lines. Lower highs and lower lows are both technical signals of a downtrend as we have seen. So, trendlines frame out the price channel by drawing the upper line on the lower highs (serving as a resistance zone), and the lower line on the lower lows (serving as a support zone). A lower low below a descending channel can signal continuation. A higher high above the descending channel can signal trend reversal.

Now that the channel is drawn, we can clearly see that price struggled to break its support and resistance zones for an extended period of time. A general rule when trading channels is that the bottom line, which serves as support, is a buy zone, and the upper line, which serves as resistance, is a sell zone. That said, in the early stages of your trading journey I advise you not to go against the market trend.

For example, if you can correctly draw a descending channel, it means the market is trending down. Now, when you take a short position at the top of the channel it means you are going with the trend and thus, have a higher probability trade. That said, taking a long position at the bottom of the descending channel means you are counter trend trading, which involves a lot more risk.

In uptrends, you can draw ascending channels as well. I won’t go too in detail on this because an ascending channel is essentially the same as a descending channel, but with the rules reversed. Below is a photo of an ascending channel, just so you can see what it would look like (don’t focus on the RSI or CRSI indicators right now, we will go over those later). Keep in mind that finding valid channels are rare and harder than finding valid trendlines. The most important takeaway for you from this section is to understand how to identify a trend, how to draw trendlines, and how to trade with the trend.

Candlesticks

Understanding candlestick patterns goes far beyond just remembering and recognizing certain formations. Many books have been written about candlestick patterns, featuring hundreds of different formations that supposedly provide secret information about what is going to happen next. Truth be told, it will make no difference to your trading performance whether you know what the Concealing Baby Swallow, Three Black Crows, or Unique Three River Bottom are. What really matters is that you understand what the candlesticks in front of you tell you about price structure, trend strength, buyer and seller dynamics, and the likely path for future price movements.

Before we start talking about the four elements of candlesticks, it’s important that you are in the right mindset. The first step is to think about price movements as a war between bulls and bears. Every candlestick is a single battle in an overall war and the elements of the candlestick tell us who is ahead, who is pulling back, who is in control, and who has a better chance of winning the next battle.

The next step is to think about context. It’s crucial to understand that candlesticks cannot be observed alone, in a vacuum. A candlestick must always be analyzed in the context of what has happened in the past. So, whenever we try to analyze a candlestick or a formation, we need to ask ourselves the following questions. Is the current candlestick larger or smaller than the previous ones? Is the change in size meaningful? And, is the change happening during an active or inactive trading period?. This is a good starting point because it helps us avoid the closed mindset that limits many traders.

Now let’s talk about the four elements of a candlestick. The first element is the size of the body. The candle body is a great starting point because it gives us a lot of information. A long body shows strength. When bodies become larger, it shows an increase in momentum. And when bodies become smaller, it shows slowing momentum. The body shows us how far the price has traveled over the duration of the candle.

The second element is the length of the wicks. Wicks can show the volatility of price movements. Larger wicks show that price has moved a lot throughout the duration of the candlestick, but it got rejected. When wicks become larger it shows an increase in volatility. This tends to happen after long trending phases before a reversal happens, or at major support and resistance levels.

The third element is the ratio between the wicks and bodies. Now we can start putting information together. Do you see longer wicks or bodies? In a high momentum trend, you will often see long bodies with small wicks. When uncertainty rises, however, the volatility picks up and bodies become smaller while wicks become larger.

The fourth, and final element, is the position of the body. This is an extension of the previous point. Can you see a long wick with a body on the opposite side? This is often showing price rejection. In addition, when you have a small body in the middle of a candle with long wicks, it shows indecision between the buyers and sellers.

You can see that once we start combining the information that the wicks and bodies provide us, we can analyze every candlestick formation. Having said that, there are two particular candlestick formations that I’ve integrated in my trading strategies, the pin bar and engulfing candlestick, which have improved my trading drastically. Let’s go over them right now.

Bullish Pin Bar

A bullish pin bar is a specific candlestick pattern where the body of the candle is small. There is little or no upper wick. The lower wick is relatively long and at least 2/3rd of the range of the candle. Here is a photo example.

When you see a bullish pin bar, it means the price opened high and then dropped down significantly. Half way during that interval, the buyers came back in and pushed the price way up back to where it started. This means that the bulls won. The bears tried to push the price down, but the bulls were so strong that they pushed the price back up. This means the buyers are in control, the demand is higher than the supply.

The bullish pin bar must appear in the right context. You can’t just see a bullish pin bar anywhere in the chart and think it’s a good opportunity to go long. It’s all about location. The bullish pin bar should appear at a support level. Ideally, the bullish pin bar should appear not only in a support, but in a support during an uptrend. An uptrend is one where the price is going up, with higher highs and higher lows. In this case, the best bullish pin bars will show at the bottom of the uptrend pullbacks, on top of the support level. Then, and only then, will you get a statistical edge over the markets.

Bullish Ice Cream Bar

A bullish ice cream bar is a specific candlestick pattern where the lower wick is at least 50% of the range of the candle and there is little to now upper wick. Here is a photo example.

Now that you know what these bullish candlesticks look like, let’s see them on a chart.

Notice how the price was in a downtrend, and then had a reversal to become an uptrend. As you can see, the bullish pin bar was fighting the support zone created and ended up being a profitable long trade.

Bearish Pin Bar

A bearish pin bar is a specific candlestick pattern where the body of the candle is small. There is little or no lower wick. The upper wick is relatively long and at least 2/3rd of the range of the candle. Here is a photo example.

The bearish pin bar is a bearish reversal pattern. We would trade this setup in the expectation that the price of a currency pair will go down. The bearish pin bar should appear at a resistance level. If it appears anywhere else, it does not mean anything. The overall trend must be going down, with lower highs and lower lows. As the market is going down, the bearish pin bar must appear at a level of resistance (usually a moving average). Only then would we place a sell order.

Bearish Ice Cream Bar

A bearish ice cream bar is a specific candlestick pattern where the upper shadow is at least 50% of the range of the candle and there is little or no lower shadow.

Now that you have seen what these bearish candlesticks look like, let’s see them on a chart

We can see that this is a downtrend. Later we will see how the moving averages sloping down indicate that we have a downtrend. The bearish pin bars appear at the resistance of the moving average. In this case, the moving average where the reversal bearish pin bar appears is the 25 moving average. The others are the 7 and the 99 moving averages.

Bullish Engulfing Candlestick

The bullish engulfing pattern is typically a buy signal that signals a potential upcoming uptrend. The pattern applies after there has been a period of consolidation or downtrend. It happens when a bearish candle is immediately followed by a larger bullish candle. This second candle “engulfs” the bearish candle, meaning that the bulls are showing more strength than bears. The change in strength with the bulls shows a reversal of momentum that is likely to continue. Here is a bullish engulfing candlestick example:

Notice how the larger bullish candlestick “engulfs” the bearish candlestick; the low of the bullish candle is below the low of the bearish candlestick, and the high of the bullish candlestick is above the high of the bearish candlestick. However, when looking for engulfing candlesticks you should not be looking at the wicks for highs and lows. Instead, you should be focused on the bodies of the candles.

Candles with long upper or lower wicks and small bodies are generally very bad engulfing candlesticks. As I told you earlier, large bodies are a sign of strength and momentum in the market, whereas smaller bodies are a sign of weakness. So, when looking for engulfing candles, make sure that the body of the second candlestick is large and engulf the previous body, and only then afterwards look at the wicks.

Bearish Engulfing Candlestick

The bearish engulfing pattern is the opposite of the bullish pattern. It is typically a sell signal because it hints that a bullish trend is reversing. This type of candlestick pattern occurs when the bullish candle is immediately followed by a larger bearish candle that completely “engulfs” it. This means that sellers overpowered the buyers and the momentum might continue. Here is bearish engulfing candlestick example:

Notice once again how the larger bearish candlestick “engulfs” the bullish candlestick; the low of the bearish candle is below the low of the bullish candlestick, and the high of the bearish candlestick is above the high of the bullish candlestick. So, a bearish engulfing candlestick is the same as a bullish one, except for the direction of the candlesticks.

Later, we will observe candlesticks with indicators to help us find quality trades in the market. There are a lot of indicators we can use to help us be more profitable, and in this guide we will go over two indicators that, if used properly, will tremendously improve the quality of your trades. Let’s take a look at moving averages next.

Moving Averages

In this section you will learn about moving averages and how to set moving averages on your chart. First, you must understand how to read a moving average. The line generated by the moving average indicator is a collection of price data gathered over the span of previous days of the selected input. For example, the line generated by the 50 EMA is the average price of the currency pair based on the highs and lows of the pair over the last 50 days.

Moving averages are an important tool to determine the trend of the market, and to determine support and resistance to enter the trade. Moving averages are important because they indicate trend direction & support/resistance levels. There are two main types of moving averages:

A Moving Average (MA) is the simple moving average of the price over a predefined number of days
An Exponential Moving Average (EMA) is a weighted moving average that applies more weight to recent prices over a predefined number of days

For example, a very popular moving average is the 50-exponential moving average. Your charting software will plot the moving averages for you, so all you need to know is how to use this indicator to trade. When the moving average is sloping up, we have an uptrend, and when the moving average is sloping down, we have a downtrend.

On an uptrend, the moving average acts as a support level, but on a downtrend, the moving average acts as a resistance level. When trading based on moving averages, you should buy/sell when the price is “near” the moving average, and not when price is further away from it. The further price is from a moving average, the more likely it is to be “overbought” or “oversold”.

When you look at the charts, you will notice that the price doesn’t always find support or resistance in the moving averages. Many times, price movements are random, but there are certain situations in which the price pattern is predictable and repeatable. You should only place a trade when you see price in a certain predictable pattern. Let’s take a look at both an uptrend and a downtrend with EMA indicators.

On an uptrend, you want to buy when the price is near a moving average support, or when the price just bounced from the moving average. When price gets too far from the moving average, the price is overbought, which means that it tends to snap back to the moving average. When the price goes too far from the moving average, it will eventually snap back.

On a downtrend, you want to sell short when price is near the moving average resistance, or when price just pulled back from the moving average. When price gets too far from the moving average, the price is oversold, which means that it tends to snap back to the moving average. When the price goes too far from the moving average, it will eventually snap back.

Plotting Moving Averages

Now, you will learn to plot these on your own chart. Log into your TradingView account. Look for “indicators” at the top and click it to get a drop down menu. Type “EMA” into the search bar. You should see a few options, click on “EMA Cross.” Now, exit out of the indicators search bar. You should see two lines, they are auto populated values. If you look in the upper left hand corner of the candlestick chart, you will see where it says “EMA Cross (9, 26)”. If you select the setting icon, you can change the inputs and the colors of the lines. You can add multiple “EMA Cross” indicators to see additional inputs simultaneously. My recommendation is that you use the following moving averages:

9 EMA
26 EMA
50 EMA
100 EMA
200 EMA

Even though you can use whatever moving averages you prefer, these are the ones used in my strategies. An important note to make with moving averages is that they are used for different purposes. For example, the 9 and 26 EMA’s are used primarily for short-term crossover trades while the 50, and 100 EMA’s are used primarily as support and resistance zones, while also providing us important information about the larger trend. Later, we will look at EMA’s to see how they can be implemented into our trading strategies.

https://www.youtube.com/watch?v=2MQwcEJvWWE

RSI Indicator

The RSI indicator is another important tool that I use to find quality trades. RSI stands for “Relative Strength Index.” It is often used to identify if a currency pair is overbought or oversold. Instead of integrating with our candlestick information like our EMA indicators, the RSI indicator is displayed separately on a line graph and usually gathers information from the previous 14 days. This input can be changed as well.

Reading the RSI indicator is fairly simple and can be used to observe optimal buy and sellpoints. If the RSI is at or above 70, the asset is considered overbought or “expensive.” If the RSI is at or below 30, the asset is considered oversold or “cheap.” You have seen the RSI in prior photos from this course. Now, let’s analyze the indicator.

The RSI is an algorithmic trading tool that measures a currency pair’s price action momentum change. The indicator will take price action data and convey the information through a simple line graph. The original script was developed by J. Welles Wilder Jr. in 1978 to display the relationship between current price action and buying/selling conditions. The RSI ranges from 0-100 with most traders using parameters of 30-70. When the RSI is trending between 0-30 the price of the asset is generally considered oversold or “cheap.” When the asset is trending over 70 the price of the asset is typically considered overbought or “expensive.”

This photo shows a candlestick chart using the RSI indicator. The candlesticks are the upper portion of the chart and the RSI is the lower portion of the chart displayed in purple.

Note how the RSI typically bounces between overbought and oversold conditions? Here is the same photo displaying those conditions along the upper and lower bands.

When the RSI is trending along the top of the upper band (usually 70) it typically signals that the asset currently being traded is overbought and considered expensive. When an asset is considered expensive, usually buyers would wait for an opportunity to buy at a cheaper price. That would be an indication to take profits for traders with open long positions. If you have no open long position, you can prepare your entry for a short position. This gives power to the sellers as there is more selling volume at peak highs in RSI conditions due to profit taking and short contract engagements. In turn this typically drives prices down.

Similar to overbought conditions (but reversed), when the RSI is displaying oversold conditions on the RSI indicator trending at or below 30 would be a reasonable time to buy. If the asset is oversold it is considered cheap which prompts potential buyers to take their entries. When buying volume increases it causes the price of the asset to rise as spectators look to enter and active short contracts take profits.

The easiest way to trade using the RSI indicator is to buy in oversold conditions and sell in overbought conditions. This sounds like the opposite action one might want to take however these scenarios yield some of the most proficient entry opportunities. Let’s take a look at that same price action area with potential profit ranges.

Generally speaking, you should always use multiple time frame analysis and additional tools/indicators to confirm or deny your positions. For the purpose of this article’s narrative we will use highlighted timeframes and only the RSI indicator. In the photo above we have highlighted two potential trades based solely off the 1 hour timeframe and the RSI indicator.

It is important to take note of where price currently is in relation to the RSI indicator to determine if you will be taking a long position or a short position. To take a long position means one would buy low in an attempt to sell higher later for a profit. To take a short position one would sell high in an attempt to rebuy the position back later at a cheaper price and pocket the difference as profits. Additionally, one can short a futures contract or position without owning the asset in order to wager on the price moving downward by using stable coin as collateral.

Referring to the photo above, the first opportunity we have is a long position represented on both the RSI graph and candlestick graph by the blue measurements. Opportunity 1 yields +9.85% after a 19 hour position. Opportunity 2 yields +20.84% from the same oversold entry as Opportunity 1; staying in the position however until the oversold signal is displayed by the RSI indicator after 2 days and 1 hour completes Opportunity 2.

In the above photo we have highlighted an opportunity for a short position based solely off the RSI indicators. Again, a trader would want to use multiple indicators and multiple timeframes to confirm or deny an entry to a trade. This highlight is to show the opportunities presented by the RSI indicator.

Measuring down from the overbought conditions represented by Opportunity 1 yields -7% after 1 day and 3 hours from the RSI overbought conditions. The RSI then entered a range of near oversold conditions signaling the end of Opportunity 1. However if that same position would have remained open until the later RSI oversold conditions broke below the lower band the potential for profit taking was -9.45% after 4 days and 6 hours.

The purpose of these photographs are to illustrate the opportunity relationship between the RSI and price action. This is the basic concept of trading with the RSI indicator. Look for long opportunities in oversold conditions, and short opportunities in overbought conditions. Let us take a step further to analyze the best use case for the RSI indicator known as divergence.

RSI Divergence

Perhaps the most useful application of the RSI indicator is the ability to find divergence. Divergence in trading is when an indicator gives conflicting information over price action from the candlesticks. There are generally two types of divergence: bullish and bearish. These can be broken down further to regular or hidden.

Regular bullish divergence is displayed through candlesticks forming a lower low while the RSI displays a higher low. In the photo below we observe regular bullish divergence.

In the above photo we can see by the blue underline that candlesticks have displayed a lower low in price action while the RSI is displaying a higher low. The angles of the lines are contradictory to each other and facing opposite directions. When a trader observes RSI divergence it is most opportune to enter on the open of the next candle to confirm that price will go up and that the low of the divergence has passed.

Entering from the divergence signal we can take Opportunity 1 to previous resistance levels for a cool +14.03%. Opportunity 2 uses the same entry however carries the position open longer until a higher profit of 18.81% is achieved. A divergence signal typically presents an excellent trading opportunity.

Another form of bullish divergence is known as hidden bullish divergence. This type of divergence is more difficult to spot but provides an equally exceptional opportunity to take a position. With regular bullish divergence the candlesticks form a lower low while the RSI shows a higher low. With Hidden bullish divergence the candlesticks display a higher low while the RSI displays lower low. Below is a photo example of hidden bullish divergence.

In the above photo you can see the two trend lines are sloping against each other. The line underneath the candlesticks goes up while the line underneath the RSI goes down. The following opportunities yielded +5.88% and +7.97% from the same entry. This hidden divergence would have had a confident closer as we can observe regular bearish divergence in this same area. Being able to spot divergence would have provided a fine opportunity among this chart.

Regular bearish divergence is displayed by candlesticks forming a higher high while the RSI displays a lower high. This type of divergence will alert a trader to close any open long positions and prepare to open a short position. The photo below displays regular bearish divergence.

In the photo above you can see the previous hidden bullish divergence. The regular bearish divergence is displayed by the orange trend lines. Price action rises higher in the candlesticks while the RSI shows a lower high. The orange line on top of the candlesticks is facing a different slope than the line on top of the RSI indicator. This is indicative of a trend reversal and allows traders to create short opportunities. There were two plausible opportunities from this regular bearish divergence signal that would have yielded profitable short trades.

Hidden bearish divergence is when the candlesticks display a lower high while the RSI displays a higher high. This is not as easy to spot but will provide similar results to regular bearish divergence. Below is a photo example of hidden bearish divergence.

It is observed in the photo above there was a formidable trading opportunity presented by the hidden bearish divergence. Candlesticks connect two high points indicated by the orange line. On the RSI, connecting the two high points gives us an opposing slope thus proving us an opportunity to short. Even if one was not able to take the entire 14% profits there were still plenty of chances to short that set up.

Finding RSI divergence is not as plentiful as finding an overbought or oversold condition, however they will provide a trader with much better opportunities than just buying low and selling high. The RSI indicator is a great tool when used alone and can be combined with other tools and indicators.

In this photo, you can see the RSI was pretty high around 01:15 and descended over the next few hours. You can also see where the price dipped under the oversold line of the RSI around 02:20 and 02:50. These would have been optimal entry times as the asset was considered “cheap.”

Shortly after the RSI soared all the way back up to the overbought line around 03:10. That would have been a good time to sell the asset as it was considered “expensive.” Later, we will use this same photo to cover one of our trading strategies.

https://www.youtube.com/watch?v=T323I2gmTaw

MACD Indicator

MACD stands for moving average convergence/divergence. This oscillator was created by Gerald Appel in the late 1970s to measure both trend momentum and direction. Typically the inputs for the indicator will populate automatically. When the script was formulated it was based on only the daily time frame and a six day work week. This is why the values have been measured out the way that they have.

The technology available at the time did not allow most users to view or generate information on smaller time frames. Therefore the fast length uses a value of 12 as this would be two work weeks worth of information. The slow length uses a value of 26 which would be a work month worth of information. The fast length minus the slow length gives us our MACD line. The source dictates where the information will be calculated from. It is suggested to use candlestick closes as they are better confirmations. The signal smoothing having a value of 9 means that it uses one and a half work weeks data. It is used to determine a change in momentum when crossing over the MACD line. The Oscillator MA type and Signal line MA type inputs allow a trader to select exponential moving averages (EMA) or simple moving averages (SMA). We will not get into style or visibility too heavily as they are more for user preference and do not affect the indicators interpretability.

MACD Use Case

Now that we understand the value inputs for the MACD indicator lets take a look at how to read them. The MACD signal line is usually displayed in blue while the signal line is usually displayed in orange. We also have the histogram. This is also the difference of the MACD and signal line except displayed in bar format. The height of the bars show the strength of the movements.

When the MACD shows a bearish crossover it usually signals that there will be some downward price action. In the photo below we have highlighted a crossover area. The MACD line (blue) crossing over the signal line (red) gives us a bearish crossover. When the MACD line is underneath the signal line it generally means there is an active downtrend. Note how on the histogram the bars also cross over the median. As the histogram bars grow larger, the downtrend grows deeper. As the histogram bars start shrinking and reverse direction back to the median the downtrend weakens.

A bearish crossover occurrence is a good sign to look for a short opportunity. It is important to note the price ranges being traded when using the MACD to determine entries and exits.

When the MACD line crosses over the signal line from under it is indicative of upward price action. This can also be observed in the histogram as well. If the MACD line is trending above the signal line it is indicative of upward price action. Again as the histogram stops making bigger bars and starts producing smaller bars it is indicative of a trend reversal. When a trader observes a bullish crossover it is generally a good idea to look for long position entries. (Example photo below)

Finally, when the MACD and signal lines are trending above the histogram median, the larger picture is considered an uptrend. On the flip side, when the MACD and signal lines are trending below the histogram median, the larger trend is considered a downtrend. (Example below)

Here we have pulled a smaller time frame to observe the relationship between crossovers. Trading the MACD crossovers is one of the easiest and most profitable strategies to date. Basically, when a bullish MACD crossover is observed a trader takes a long position. When the bearish crossover is observed the traders closes the long position for profits and begins looking for a short entry. After the next bullish crossover, the short position should be closed for profits to look for the next long opportunity. Not every crossover will be 100% accurate or profitable which is why it is important to use multiple time frame analysis to compare data spreads. While it is possible to rely on just one time frame it is not practical.

It is uncertain what any asset may do regardless of the indicator being used to measure or its success rate. That is the entire dilemma of trading. We must use the tools available to us to infer what the market might do next. The MACD indicator is generally very reliable and trustworthy. It can be combined with other indicators to help infer the status of a market prior to planning a trade.

https://www.youtube.com/watch?v=zYjE9sdWPJ8

ADX Indicator

Let me briefly teach you how to plot this indicator on TradingView and 3commas. Simply type “adx” into your indicator search bar, or “Average Directional Movement Index”. A new window with a line graph will pop up under your candlestick chart. It should look something like this:

Background

The ADX indicator clocked in early in 1978 and hasn’t clocked out since. This wonderful tool was created by J. Welles Wilder, the same man who created the above-mentioned RSI indicator. It sits across the screen of hundreds of thousands of traders at any time. The indicator is used to gauge trend strength. Essentially the instrument is a combination of two other indicators also created by Wilder, the Positive and Negative Directional Indicators.

It doesn’t exactly correlate to candlestick action as you might think. The indicator doesn’t measure trend direction. While some indicators can be used to measure a potential breakout, this indicator is more lagging. What this means is that there must be some sort of trend active before a signal can be interpreted. On smaller time frames it could still be used to track the emergence of a larger scale trend. I’m not going to bore you with the equation, although you can review the method of calculation here. However I will show you the input settings and how you can adjust them to actually apply the ADX indicator when making your technical analysis.

Inputs

I will be demonstrating the indicator on TradingView. You will need to type “ADX” in your functions search bar. There really are not too many settings to tinker with compared to other indicators. As far as the inputs go, you have three options.

Indicator Timeframe: This input basically allows you to change the viewing period independently for the ADX indicator so that it does not have to match the time frame of the candlesticks. Typically an indicator’s information will update when the time frame is changed.

ADX Smoothing: By adjusting this you can get a “more smooth” reading. This will make the line displayed by the indicator more smooth or choppy. By changing the value of this input you are changing the time period of the data being interpreted. By decreasing the value you are consolidating data over a smaller time period thus making the line more “choppy”. By increasing the value you are taking data from a larger time period which makes it more “smooth”.

DI Length: Adjusting this value is similar to adjusting the value above in terms of display response. Decreasing the value uses information from a smaller time period and increasing the value takes information from a larger time period. DI stands for Directional Indicator and is part of that complicated logarithmic equation we skipped over earlier.

Below we show an image portraying the ADX inputs. The ADX indicator is displayed three times below. The first time is with the values of 14 and 14. The other two make changes to each input to show how it will change the display of the indicator.

Now we compare the ADX with different inputs.

The Style tab has two options. The first is color/display. You can choose what color you want the line to be and in what manner you want the information displayed. I choose to use the base settings of orange and line graph. The second is the precision. Altering this input will provide additional zeros after the decimal. It shows two zeros by default and on this indicator there isn’t much to read in between so two is fine. Below is a snapshot of what that looks like.

The Visibility section is the same as all other indicators, it allows you to select which time frames you want the indicator to be displayed on.

Interpretation

Next we will observe the relationship between the indicator and price action. As mentioned earlier this indicator is a lagging indicator, meaning there must be some trend established first for the ADX to display the strength. The sharper the rise in price action the stronger the trend will be relayed on the graph.

Now one thing that you must note before advancing is that this indicator shows trend strength only; not trend direction. You must understand that just because the ADX is going up does not mean the candlesticks will also be going up. If a trend is going up and the ADX is also going up then it is likely the trend will continue until the ADX shows a turnaround. If the ADX is going up yet the candlesticks are going down, it means the candlesticks will likely continue to trend down until the ADX sees a turnaround. It can be used as a reversal signal and we will show how shortly. Take a look at this photo below. We will be observing the daily time frame.

You can observe in the photo above that there are some times when price action goes up while the ADX rises. There are also times in the same photo above where the price is falling yet the ADX is rising. Both of those scenarios are normal, as the ADX shows a trend’s strength, not its direction. You can generally make use of the indicator by placing your long or short with the trend direction. The photo below is the same as above, but with the ADX cycles highlighted in color codes to show the relationship (legend for colors in the same photo).

You can see in the areas of blue that while the ADX is going up the candlesticks are also going up. In the areas of white you can see where the trend weakens while the ADX reverses direction. If you enter a position based on the ADX being low and rising with candlesticks, then an ideal time to take profits would be when the ADX is declining. It’s possible that after the ADX decline you will see more growth in price action, so you may pay close attention to it for the next breakout or decide to re-enter a long based on new data.

In the areas of red the candlesticks are trending down yet the ADX is rising. Again this is normal, as the ADX indicator shows a trend strength rather than trend direction. There are two red areas in the photo above. The smaller one to the left shows a small rise in ADX and a rather small decline in price action. The second larger red area to the right shows a much steeper increase on the ADX and the candlesticks display an equally steep price decrease. This means that the downtrend was very strong at that time.

Immediately following the larger red area on the left is a white area to the right. You can see the ADX shows a prolonged decline meaning the active trend (which was a downtrend) was losing strength and likely to reverse direction.

Hopefully you can observe a relationship between the indicator and price action. Now let’s take a look at a one-hour timeframe and try to see the connection.

In the first red box we can see that the price is going down while ADX is going up. In the next white box we see the ADX declining, meaning the downtrend is losing strength. Then we can see in the next blue box that the ADX starts to rise again, now this time price action is a positive trend. In the largest white box you could have sub-framed it as there is ADX fluctuation within the area, however in candlesticks you can see the downtrend lose strength then a price consolidation before the next rise in ADX.

Applicability

Now that we know how to set up the ADX indicator and how to interpret the data being shown to us, we can combine all this to find a trade opportunity. Let’s take a look at a five-minute chart below and identify some ranges.

At the time of the snapshot the trend direction was looking for a positive move as the ADX was increasing while price action was also increasing. There is currently a valid downtrend as shown by a series of lower highs and lower lows. A trader may want to short that setup. Looking at the example below we will observe how the ADX could help us make two valid trades.

In the same area of price action there are two possibilities, price increases or decreases. In this example, by trading with the active trend you can enter a short as ADX is rising and look to exit with profits as ADX starts to decline.

Using the same setup, you can also wager on a counter trend trade by taking a long as ADX declines after a valid downtrend.

In the first scenario we saw the ADX rise and entered a short because there was a valid downtrend gaining strength. In the second scenario we waited for the downtrend to show exhaustion and placed our bet that the price would increase (or at least consolidate) in our favor as a counter-trend set up.

Both setups presented a profitable opportunity. In this setup the latter trade would have been more profitable as the entry actually did catch a trend reversal. However, the first trade would have made more sense on the entry as you were trading with the valid trend by taking a short. The likelihood that price would continue to go down was high as the ADX was showing the trend to be gaining strength. The second trade was more profitable because it entered before a trend was established (which also made it more risky).

What we are looking for in this indicator is; if the moving ADX line is above or below 25. The ADX indicator measures the strength of a trend, so it let’s us know if a trend is currently weak, or strong. If the ADX line is below the 25 level, then that means the trend is currently weak. On the other hand, if the ADX line is above the 25 level, then that tells us we have a strong trend.

The ADX indicator is simple to read, however, it is more of a helper to give us information and confirm our setups rather than a tool like the other indicators previously discussed. For instance, if both the 15-minute and 1-hour time frames are in a clear uptrend but the ADX is below 25, then I might still take the trade. However, if the 15-minute is on an uptrend and the ADX is above 25, but the 1-hour timeframe is not on a clear uptrend. Then I won’t take the long trade.

You should never use this indicator or any other indicator alone to set up your trades. Instead, you should use a combination of these indicators along with multiple time frame analysis to become more consistently profitable.

https://www.youtube.com/watch?v=WeUCRpO9ig4

Multiple Time Frame Analysis

Most traders make their trading decisions based exclusively on a single timeframe. They spend all their energies in analyzing the technicals on their trading time frame without giving much thought to what may be happening in the “bigger picture” timeframe. Even though that can work fine in some cases, a more reasonable approach would entail looking at several time frames in order to get a better insight on the potential viability of a trade setup.

For the average trader, multi time frame analysis can seem a bit overwhelming and even confusing at times. One of the major reasons that traders avoid multi time frame analysis is due to the conflicting information that sometimes results from this approach. This confusion causes many of these traders to suffer from “analysis paralysis”.To prevent this from happening to you, I am going to cover the correct way to view multi time frame analysis, and how to correctly implement it into a trading methodology.

What is Multiple Time Frame Analysis?

Multi time frame analysis is an analytical concept in trading which proves to be quite powerful when utilized the right way. The idea is to observe different time frames on the same currency pair being analyzed to identify market behaviors and trends on those time frames which would help us recognize what is happening on those time frequencies. Usually we are looking for information from the higher time frame to help guide our decision process on our trading time frame.

Professional traders understand the benefit of multi time frame analysis, and they will usually segment their analysis into three distinct time horizons: the trading time frame, the bigger picture time frame, and the signal entry time frame.

Multi time frame analysis can help traders simultaneously increase their probability of success on a trade and minimize the risk exposure. While there are many new and fashionable trading techniques that are popping up all the time, there are some concepts such as support and resistance, price action, and multi time frame analysis which are timeless in nature. They have worked in the past, they work well in the present, and will continue to work in the future, because they are based in market logic.

Using three different time frames provides the best combination for reading the market action. The first timeframe to consider is the trading time frame. This is the time frame that traders are used to spending most of their time on.

The second time frame that you must consider is the higher-level time frame. For example, if your trading time frame is the 1-hour chart, then your higher time frame should be the daily chart. This time frame provides you with the “bigger picture” view, and you would use this time frame to check major support and resistance zones, as well as the overall trend direction.

Lastly, we have the smaller time frame. Using the same example, if your trading time frame is the 1-hour chart, then your smaller time frame would be the 15-minute chart. The purpose of the smaller time frame observation is to be able to time your trades for optimal entries. We typically zoom in on this timeframe only after we have confirmation of our trade setup on our trading timeframe and the higher timeframe.

Multiple time frame analysis provides you with a means by which you can improve your statistical trading edge. A key concept in trading is to always try whenever possible to trade with the trend. The question is, which trend? Multiple time frame analysis helps you to answer this question. Our trading edge can be further improved through better market timing, which is another benefit that can be gained through proper multi time frame analysis.

Top Down Approach Advantage

Now that you understand what multi time frame analysis is and recognize the benefits that it offers, let’s discuss the correct way to implement the “top down” approach. We know that we should be segmenting our analysis into three different timescales: our trading timeframe, our bigger picture timeframe, and our trade entry time frame. I think many traders understand this, but where many of them go wrong is in the mechanics of how they analyze these three timeframes. Instead of using a top down approach, many traders incorrectly apply multi time frame analysis by using a bottom up approach. This is one of the biggest mistakes I see novice traders make.

For example, Craig, an aspiring crypto trader who understands the importance of multi time frame analysis, has incorporated this approach within his trading plan. In his plan, he has clearly outlined that he will use the daily chart for his big picture analysis, the 1-hour chart for his setups, and the 15-minute chart for fine tuning his trade entries.

Now, as Craig starts his trading day, he is going back and forth between the 15-minute charts and the 1-hour charts, and sees an interesting pattern emerging on the 15-minute BTC/USD chart, so he consults the 1-hour chart and everything seems to look okay, and then he finally consults the daily chart, where he doesn’t seem to find anything that would prevent him from taking the 15-minute chart pattern.

You see the mistake that Craig is making here? Well, there are several, but let’s start with the first. The first mistake is that Craig is taking a setup from the 15-minute chart. There is nothing particularly wrong with that, but given his trade plan, he is only to use the 15- minute chart for timing purposes. His setups should be taken in the 1-hour time frame. So, Fred is going against his trading plan, whether intentionally or inadvertently.

Craig’s second mistake is he is taking a bottom up approach rather than a top down approach. Instead of starting with the higher time frame chart, and then referring to the trading time frame chart, and then to the timing entry chart he is doing the exact opposite.

What is the problem with this? The problem is that when you start with a bottom up approach, you will tend to adopt biases at the lower timeframe and then look to the higher ones only to confirm or justify your opinion. This produces a very one- dimensional view that entirely misses the point of proper multi time frame trading analysis.

A top down approach is a much more objective way to perform your analysis. You essentially begin with a broader view and work your way down to the lower time frames. In Craig’s case, if he were applying the multiple time frame trading approach correctly, he should have started with the bigger picture chart which was the daily chart, where he would have formed some opinion on the overall direction of the market, worked down to the 1-hour chart, where he would be looking for his setups in conjunction with his bigger picture bias, and only if and when his setup was present on the 1-hour, would he even consider consulting the 15-minute chart, and that would be for the purpose of fine tuning his trade entry.

Exploring the Different Time Frames

Understanding the importance of using a multi time frame approach and the proper way to utilize it, the natural question becomes “What are the actual time frames that I should be looking at?” There is no one right answer to that question. The truth is, it will vary greatly based on your trading style and price targets. First you have to define your trading time frame, and from there you could extrapolate your next higher and lower timeframe. For the purpose of this trading guide and the day trading strategies mentioned within this guide, you should be observing the 1-day chart first, then the 1-hour chart, and lastly the 15-minute chart.

To make this easier for you, I’m going to break down the different time frames and their importance in my overall trading.

Daily Chart

The daily chart is extremely important in my overall decision process. I will not take a trading position without first doing thorough technical analysis on the daily chart. I typically plot horizontal support and resistance zones, supply and demand zones, and perform relevant trend line and pattern analysis on the daily chart.

Even though my setup time frame is the 1-hour chart, I consider the daily time frame to be the most important for my trade analysis because this is where the big/institutional money is. I want to make sure I am positioned on the side of the big players and institutional order flows that are capable of moving prices.

1-Hour Chart

I will typically use the 1-hour chart in two ways. When I’m done analyzing the daily chart and I have formed a strong bias on a particular currency pair, I will zoom down to the 1-hour chart. From there, I make an assessment to see if there are potential setups emerging that I could trade in line with my daily chart analysis.

The second way I utilize the 1-hour chart is by independently analyzing the pairs on this time frame and scanning for high probability trade setups. When I find a setup that looks promising, I would then consult the daily time frame to make sure that I am NOT:

Trading against a major trend on the daily.
Trading right into a daily support and resistance zone.
Trading against a divergence formation on the daily.

By using this 3 step filter, I find that I am able to weed out many of the lower probability trades.

15-Minute Chart

This is my execution time frame. Once I have the go-ahead from my 1-hour and daily charts, I zoom down to the 15-minute chart in order to get the best trade execution. This is because I am able to see the emerging price action patterns in greater detail. If I am looking for a breakout, I will analyze important price swings that I feel, if broken, will begin to propel prices.

Improving Entries and Exits

When I talk about multi time frame analysis with traders, most seem to be able to grasp the importance of using the next higher timeframe to get a big picture view. However, many traders seem to stop there and forget to zoom down to the next lower timeframe in order to optimize their entries.

As you may know or will soon come to realize, in order to be a consistently profitable trader, you must take advantage of every edge that’s available. By ignoring optimal trade execution methods, you are leaving money on the table. To realize the best trade entry time, you should zoom into the next lower time frame and execute from there.

When I am planning a trade, I want the best possible trade execution, and I will routinely execute off the 15-minute chart. I almost always use “conditional market” orders, because I would rather get in on a trade at a cheap price than end up missing a great entry price.

This is a crucial concept to understand. Most traders, on the other hand, typically take the opposite stance. They will chase a trade until they are filled regardless of how far the price has moved away from their anticipated entry point.

I am not as adamant about executing from the lower timeframe when planning to exit a trade. In fact, most times, I will set my stop loss and take profit orders the very moment that I enter a trade in the SmartTrade terminal of 3commas. The stop loss could be off either the 1- hour or 15-minute chart. I much prefer to do all my analysis prior to the trade execution, and then letting the market do what it will.

There is no need to stress about a trade once it is live. The price of the cryptocurrency pair will either hit my stop loss for a small loss or hit my take profit for a nice profit. I have found that this type of passive trade management works best for me and reduces the overall stress and emotion in my trading. Sooner or later, you will realize that the moment you are in a trade, all your biases will come into play and haunt you during your trade management. It is one of the most difficult aspects of trading, and each trader will have to work on an approach most suited to them. We will learn more about managing our emotions in Chapter 6.

https://www.youtube.com/watch?v=pSD5I-j6zD8

Conclusion

To conclude, the proper application of multiple time frame analysis when trading crypto will dramatically increase the odds of success on many trade setups. Without a doubt, traders that incorporate this methodology into their trading routine will be able to improve their bottom line trading results.

In this section, I have detailed the importance of candlesticks, moving averages, the RSI indicator, the ADX indicator, and multi time frame analysis. I am certain some traders reading this that have some prior trading experience will continue to trade in isolation using their preferred single time frame and indicators. Do not be one of those traders, they’re competing with those that are equipped with a much deeper understanding of what is taking place in the markets.

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