Crypto Academy Season 6 Week 2 - Crypto Trading with Price Action.

in hive-108451 •  4 months ago 

Good day steemians, This is season 6 week 2 of the crypto academy and I'll be doing the task assigned by crypto professor @reminiscence01

TASK

  1. Explain your understanding of price action.

  2. What is the importance of price action? Will, you chose any other form of technical analysis apart from price action? Give reasons for your answer.

  3. Explain the Japanese candlestick chart and its importance in technical analysis. Would you prefer any other technical chart apart from the candlestick chart?

  4. What do you understand by multi-timeframe analysis? State the importance of multi-timeframe analysis.

  5. With the aid of a crypto chart, explain how we can get a better entry position and tight stop loss using multi-timeframe analysis. You can use any timeframe of your choice.

  6. Carry out a multi-timeframe analysis on any crypto pair identifying support and resistance levels. Execute a buy or sell order using any demo account. (Explain your entry and exit strategies. Also, show proof of transaction).


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Image designed with canva

Understanding of Price Action

It's widely believed that fundamental analysis in most cases is all that is required to actively trade and profit in the market. This view is mostly upheld by long-term traders with huge capital who come into the market once in a while, check out the overall trend structure of an asset and analyze the fundamentals before investing in the market. However, this method of analysis cant be deemed as complete or accurate enough. The overall trend structure and performance of an asset over time can be discovered through fundamental analysis however we cant determine optimal positions to place entried and exits alike using just fundamental analysis.

Important structures in the market which have been known to cause a general market reaction such as liquidity levels, support and resistance levels, demand and supply zones, Order blocks cant be discovered accurately and risk management measures such as knowing where to place stop loss and take profits levels would not be easily determined due to the macro view of fundamental trading and this is where price action comes in.

With price action, traders would be able to discover important market structures such as those listed above just by paying attention to the information displayed by candlesticks. An example of this form of trading is given below in the SOL/USDT chart pair where important structures have been highlighted.


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Price action trading
image gotten from trading view

Raw price action traders have argued that all necessary information required to trade in the market has been embedded in price and each candlestick has a story to tell.


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2. What is the importance of price action? Will, you chose any other form of technical analysis apart from price action? Give reasons for your answer.

Price action trading is a very effective form of trading and its allows traders to take advantage of market opportunities. Some inherent benefits of price action are as follows:

  • It allows one to spot important levels in the market strong enough to cause a market reaction such as support and resistance zones, liquidity levels and demand and supply zones.

  • Price action helps to filter out the noise in the market by paying due attention to the candlesticks developed on a timeframe.

  • It facilitates the effective practice of risk management measures when trading by identification of key levels. It also helps in the determination of entry points in the market and helps to minimize the stop loss used.

  • It helps in spotting trading patterns such as the bullish and bearish engulfing patterns which can help to determine reversal or continuation formations in the market.

    I won't choose any other form of technical analysis asides from price action, if at all I would employ any other form of technical analysis, it would be to confirm my analysis with price action. This is because most of the information needed by traders are already communicated by price movements and it's relatively easier to forecast price pattern and determine entry and exit positions in the market using just price action.


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3.Explain the Japanese candlestick chart and its importance in technical analysis. Would you prefer any other technical chart apart from the candlestick chart?

The Japanese candlestick is a technical analysis tool used by traders to determine the movement and performance of an asset over time. This charting concept originated from a Japanese rice trader named Munehisa Homma who discovered that the market was composed of traders who react to and are influenced by emotions caused by the interplay of supply and demand on price in the market.

The Japanese candlesticks provide more detailed information on price and are very useful in demand and supply trading. By default, there are two different types of candlestick formations and they are differentiated by their color. In a situation where the demand outweighs supply indicating that buyers are in control in the market, the candlestick would be green/white and in a situation where the supply outweighs demand, indicating that sellers are in control in the market, the candlestick would be red/black.

Each japanese candlestick basically contains a body, open, close, high, low and upper or lower shadows also called wicks


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japanese candlestick breakdown
source

From the above image, a bullish candle is represented by a white candle and a bearish candle is represented by a black candle.
In a bullish candle, the open price is below the close price and in a bearish candle, the open price is above the close price.
With the help of this informations, we can discover reversal price patterns and identify key levels in the market.

This candlestick can be used in any timeframe and is particularly useful in multi-timeframe analysis.


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Would i prefer any other chart pattern

There are other candlesticks apart from the Japanese candlestick such as the Renko, Kagi, Heiken Ashi, line chart etc.
One other candlestick I'd prefer over the Japanese candlestick is the Heiken Ashi which means "average bar" in English, famous for filtering out the noise in the market and helping traders to trade existing trends without having to worry about unnecessary market information.
With the Heiken Ashi, traders can determine when to stay in a trade or exit trades which does a lot in attaining profitability in the long run.


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Image gotten from trading view


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4. What do you understand by multi-timeframe analysis? State the importance of multi-timeframe analysis.

Multi-timeframe analysis involves the usage of a different number of timeframes (yearly, monthly, daily, 4 hourly etc) to analyze the same asset in order to help in trend prediction and determination of entry points.

By making use of multi-timeframe analysis, traders can greatly increase their chances of profitability by making use of longer timeframes to get a broad overview of the general trend in the market and narrowing the analysis down to smaller timeframes to spot key zones and going further to even smaller timeframes to spot determine where to enter and exit the market.

Multi-timeframe analysis is however dependent on the kind of trading style a person chooses to emply. A position trader could make use of anything from the yearly timeframe to the daily timeframe to determine the overall trend in the market and narrow down to the daily timeframe to spot entry points, likewise a swing trader could emply the monthly timeframe to spot the trend and narrow down to anything from the daily to the 4 hourly to determine entry points.

Scalp traders could begin with the 4 hourly to spot the trend and narrow down to the 15 or 5 minutes to take trades.

Multi-timeframe analysis importance

  • With the aid of multi-timeframe analysis, the noise in the market can be filtered with ease and phases of accumulation and distribution would be easily identifiable.

  • Multi-timeframe analysis helps to enforce proper risk management practices when making use of multiple frequencies to analyze a pair and determine entry points. For example, the 1 hour timeframe could be used to spot entry and affix stop loss instead of the daily timeframe. This would lead to a tighter stop loss meaning less risk for more profit.

  • With the use of multi-timeframe analysis, trades and signals analyzed on one timeframe can be confirmed with the use of other timeframes.


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5. With the aid of a crypto chart, explain how we can get a better entry position and tight stop loss using multi-timeframe analysis. You can use any timeframe of your choice.

Using multi-timeframe analysis, i'll analyze the chart of XRP/USDT and narrow down to the smaller timeframe to find entry points and minimize stop loss level.


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Demand zone spotted on four hourly timeframe

The XRP/USDT chart above is in the four hourly timeframe which is the longer timeframe in this analysis. Here i've marked out a strong demand zone which initiated bullish pressures with strong momentum and a support turned resistance level which price could potentially react to, to form the basis for our take profit level. It could also be viewed as an order block and here the last bearish candle before the impulsive bullish movement would be marked out.

However, entry cant be taken at the proximal line of the demand level because it would lead to a very wide stop loss level, therefore we could go down to a smaller timeframe to refine the demand zone (order block) and find a better entry point with lower risk.

Moving on to the 1 hour timeframe


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Demand zone refined on hourly timeframe

Here, the demand zone has been further refined, the hourly timeframe revealed more candlesticks and price information and thus the last bearish candlestick before the impulsive movement has been marked out on the hourly timeframe.
The zone has been refined and made smaller but can be further refined using the 45 minute timeframe.


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Demand zone refined on 45 minute timeframe

Heading over to the 45-minute timeframe, the last candlestick before the bullish movement which happens to be a doji candlestick was the new zone. We've managed to refine our entry-level and the stop loss level has been made smaller using the 45-minute timeframe. Observe how the trade played out immediately price retraced back to the chosen zone (order block/demand zone).

Using multi-timeframe analysis, the support turned resistance zone which was marked out on the four hourly timeframe has been used as the basis for the take profit level. This was an optimal zone as we notice that price reversed to the downside upon mitigating this zone for the second time.


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6. Carry out a multi-timeframe analysis on any crypto pair identifying support and resistance levels. Execute a buy or sell order using any demo account

For this task, I'll analyze the SOL/USDT chart pair and identify key levels such as the resistance and support levels using the multi-analysis trade setup.

Beginning with the longer timeframe of 4 hour, I'll be spotting key zones and trade scenarios before moving on to smaller timeframes to take my entries with optimal risk management strategies applied.


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4 hour timeframe analysis SOL/USDT
image gotten from trading view

In the chart above, it's observed that the chart of the asset pair above is in the 4 hourly timeframe on which support and resistance levels which price has reacted to historically has been identified. A recent retracement to the downside which occurred in the market has seen price retesting the support structure marked out and price is thus expected to reverse to the upside, therefore, a buy signal is considered.

The support level would also form the basis for setting our stop loss levels. In this scenario, the stop loss would be marked just below the support level.

Switching to a one-hour timeframe, the support level has again been identified and the buy signal setup has been confirmed on the one-hour timeframe too.


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1 hour timeframe analysis SOL/USDT
image gotten from trading view

In the hourly timeframe, the rejection upon price hitting the support level is well spotted. Using the hourly timeframe, we have confirmation that the support zone is still very much valid. This is seen by the mini uptrend that has begun to form on the hourly timeframe.

The uptrend structure would be well seen on the 15-minute timeframe on which the entry would be taken


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15 Minute timeframe analysis SOL/USDT
image gotten from trading view

Hence, the 15 minute timeframe has confirmed the buy trade analyzed on the higher timeframe, the trend line is being respected by price and thus a buy trade would be opened at this point. Proof of demo trade placed is given below.


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image gotten from trading view paper trading

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Conclusion

Price action trading is a very essential trading manner that helps traders to have a broader overview of the market and view market structures clearly. With price action trading, the chance to increase profitability is greater in the market. The crypto professor has done an excellent job of putting forward the concept of price action trading as well as strategies to use to profit from this form of trading in a simple way. Thanks to the steemit team for the crypto academy, It's done far much in helping me tackle the markets one indicator/strategy at a time.

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