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SKELTERS Simple Guide To Trading 3 of 4
SKELTERS Simple Guide To Trading 3 of 4
market by these lines. You can also use these lines (and this is important) as
resistance and support.
Note the 200 MA (red). Notice how the candles bounced off it twice before
You will find the same thing happening on the 20 and 100 MA at various times.
Take note and do not ignore the 200 MA. Remember, they show you the trend of
the market and can act as resistance and support. Combine them with trend lines
for confir when it does occur, your
speculation goes up a couple of notches.
Since w
Notice something? See how the RSI movement reflects the candle movement? Let
me highlight this better.
Notice how every high candle is aligned with a high RSI. Also a low candle is
aligned with a low RSI. It makes sense to do that because if the strength
(momentum) is high, then traders are buying this coin and so the price is going
up. If the strength (momentum) is low, then traders are selling and so the price
dips.
The following is extremely important and you can have it in your arsenal of
knowledge to predict an incoming trend. This is where you can make money.
Easy.
able to do this now. It should look like the chart below.
We used the highs but you can also use the lows.
Notice how the trend lines mirror each other. This is called convergence and is
important for you. The price of the coin mirrors the RSI of the coin.
You will notice that I left a part of the chart without a trend line.
Why did I do that? Well hopefully you would have noticed it yourselves when
I colored them red for you. One is upwards, the other downwards. This is called
divergence and it s also very important to you.
Brothers and sisters: You have your candle and RSI chart and from these two, you
will determine whether their trend lines are convergent or divergent. Why?
Because by using this, you will determine if the market will go up or down by
using these simple rules:
The above can be explained as:
Price decreases: RSI decreases= Exit short as soon as you see reversal
The above also works with two other favorite indicators of mine, volume and
momentum. Use any of these indicators and the rule is the same i.e.
Simplify this in your mind. If price is increasing and volume is increasing, it means
that the price will continue to go up
longs are safe.
If price continues to increase but volume is decreasing, that means that early
traders are out but noobs are buying. From whom are they buying? From the
early traders that are now selling for profit. At this point you exit longs, because
when noobs start selling at a loss, price will go down. We are not noobs. Do not
be one. They exist so we can make profits off them.
This is the philosophy behind these rules. Learn them, understand them and use
them. Your trading will become much more profitable.
Notice the ascending price trend line A, and its corresponding descending RSI
trend line B. These lines are divergent to each other, meaning that they go the
opposite the way. According to our rule, Price increases: RSI decreases=Exit long
as soon as you see reversal. At arrow C we see the first reversal bar. After we see
a reversal, we exit longs because we expect the market to fall, and in this case it
did just that. Remember this is a daily chart (each bar is 1 day) so you have plenty
of time to notice it. You can do this on a 4hr (each bar is 4hrs) chart as well BUT in
the case of 4hr chart, I suggest you wait for confirmation. In my case, my
confirmation on a 4 hr chart is 2 red candles. Two are good enough for me
because the 3rd might be a huge one, just like in our chart.
one.
Ascending price trend line A and descending RSI trend line B. They go the
opposite way to each other so they are divergent. According to our rule Price
increases: RSI decreases=Exit long as soon as you see reversal. Arrow C marks
the reversal, one long candle. So, if you waited until the end of the day for the
Use the 2hr tf, and the 1hr tf, the same way. I have no issues in using 2hr and 1 hr
confirmations. You can act quicker on your trades.
I want you to feel more comfortable with divergence and convergence, so let s do
a few more (sorry to bust your balls). This time instead of using RSI, we will use
momentum as an indicator.
Descending price trend line A, and descending momentum trend line B, are
convergent. They are both going the same direction, in this case, down. According
to our rule Price decreases: volume/momentum decreases= Exit short as soon as
you see reversal. The second green bar confirms reversal so I exit shorts. Our long
trend playing out perfectly as shown by D.
important to know that confirmation may not be instant, or 1-2 days. It may take
a few days to play out and in this case, our long, D, took more than a week.
Trend lines A and B are both descending so according to our rule Price decreases:
volume/momentum decreases= Exit short as soon as you see reversal. You
exited shorts, but the market continued to go down as shown by C. In fact, it kept
st
and 2nd candle in area C, were red. Keep the
following in mind when trading. The moment you realize the confirmation is
invalidated, than the whole trade is invalidated.
I hope you enjoyed and understood these charts. I can go on and on, but the
principle is the same. With practice you will learn to pick out the trend lines and
speculate the upcoming market trend. In other words, you study the data and
place your trades accordingly.
Before I go, let me highlight certain patterns that are useful in speculating the
direction of where the market might be heading.
Above is a perfect Head & Shoulders (H&S) pattern. For this pattern you need a
left shoulder, a head and a right shoulder. Ideally the right shoulder should be
lower than the left shoulder. A H&S pattern warns of an upcoming fall in prices. I
this. You get something like
below:
On the above chart, somewhere, we have a H&S pattern. Can you find it?
Can you see it now? Let me magnify it for you and please stop smiling:
Above is btc 4hr chart
We said before that a H&S pattern usually warns of a upcoming fall in price.
What is brilliant about this pattern is that we can use this pattern to determine
the approximate amount of the fall in
neckline.
Above is btc 4hr chart
the same length of line from neck line of the right shoulder, as shown below by
arrow C.
Above is btc 4hr chart
From line C you can speculate the length of the dip that usually comes after a H&S
pattern, in this case, 27957 for btc. It actually went a little lower, but note how
the candles hit that level exactly. This is the reason why H&S patterns are brilliant.
Th s also a reverse H&S pattern. As the name suggests, this patterns warns of
an upcoming rise in price, and to be honest, they are a bit harder to pick out. It
took me long time to find one for you but this is the best I could do.