The Trend is Your Friend, Until the End of a Trend Where Patience Pays Off till The Next Round!
If you’re long enough in the crypto trading sphere, you’ve probably heard about this old saying. Most people know about the first part (The Trend is Your Friend) and forget how it ends (Until the End of a Trend). Don’t make this mistake, because following a trend is as important as knowing where to flip your bias. So, what is this all about?
According to Investopedia, a trend is a general direction of a market or price of an asset. There are multiple methods to identify a trend and I would recommend using at least a couple of them. When you apply different techniques and see how they correlating with each other, it increases the probability of you being right in your analysis.
How can you identify trends with basic instruments?
The simplest tool is the trend line. Here is an example of a trend line at Bitcoin chart from 2019:
This is not the most accurate drawing but still can give you a basic understanding. As you can see Bitcoin was trending upwards and bounced every time after touching this trend line.
Key points here:3 touches make a trend line, not less. You can’t consider a valid trend line if it has only 2 touches. You can draw a trend line using bodies or wicks, just be consistent. If you choose wicks, your strategy should imply only wicks.
You can also use candles to identify a trend. Japanese candlesticks have a history of more than 400 years and they are giving information faster than any other indicator. If you want to become a successful trader, you should know how to read them properly. I can talk a lot about different patterns and types of candlesticks, but in this particular case, we need them to identify a trend. We’ve used as an example Bitcoin bull market, now let’s apply them to the bear market of 2018.
The basic definition of a downtrend is a series of lower-highs and lower-lows. Che...