In this analysis, we will be using , Zones, and . We shall understand them briefly.
can be ascending or descending lines. The are formed using at least 2 tops or bottoms. Ascending lines are formed by joining at least 2 higher highs or 2 higher lows which act as support. Descending lines are formed by joining at least 2 lower lows or 2 lower highs which act as resistance.
Applications of Trendlines:
1. They indicate the prevailing trend in the particular duration.
2. They act as lines.
3. If ascending are broken to the downside and the immediate low of the rally is broken then the stock may have a new downtrend.
4. Similarly breaking the descending to the upside and an immediate high of the prevailing fall indicates the new uptrend.
Zones are the zones where the price is failing to break out multiple times. Supply zones are the areas of interest for the bears and demand zones are the areas of interest for the bulls.
Applications of Zones:
1. They represent the critical areas in the chart where the traders or investors are interested.
2. Breakouts in either direction will add momentum in that direction.
Interesting Interpretation of and Zones:
1. Ascending are joined by the points where bulls are interested to go long.
2. Descending are joined by the points where bears are interested to go short.
3. Similarly demand and supply zones are zones where bulls and bears are interested in long and short respectively.
4. Giving up and prices going below or above immediate level indicate that the bulls or bears have given up on the stock for a while.
The breakout should be confirmed by checking higher volumes or pull backtest or waiting for the price to take out immediate high or low. This confirmation gives us a confluence between the different schools of thought. Some traders may only follow for breakouts, some may follow zones, these checks ensure you have more participation towards your position.
Once the trendline or a zone is broken the nature becomes opposite. For example, if a or a descending line is broken, the price rises and then comes back to test the zone, this time it must act as a or support line, else it is said to be failed in the pull backtest.
Relative Strength Index ( )
It is a of the price in a particular duration. For detailed definition and formula, please check in the indicators section in TradingView.
It is generally used to determine whether the stock is oversold or overbought.
Applications of RSI:
1. Oversold if the price reaches 20 or 30.
2. Overbought if the price reaches 80 or 70.
3. Reversal signs based on divergences. If price is making higher highs or higher lows but on contrary is making lower highs or lower lows. Then it is a sign of bulls giving up and a reversal is on its way.
Let us these concepts and apply to our chart.
You can see zones and the on the chart.
The had been tested four times and then took a great fall. You can have a doubt that actually once the price had managed to breakout with good volumes and crossed immediate higher high but even failed. Yes, here it failed the pullback test. It received resistance from the purple trendline 1 and came back for the pullback test and failed. We can see a divergence by checking corresponding highs trendline 1 connected in . was also indicating overbought signs.
After a certain fall, it rose again to test the zone which now turned to and couldn’t break. This gave confirmation for the participants of different schools of thought, hence with huge volumes price fell.
The price reached another critical area called the . Before falling into the , the purple trendline 2 gave support to the fall. The corresponding trendline 2 in confirms the and showing oversold signs. This reversal was confirmed by huge volumes, taking out the 40k mark and breaking a strong trendline which resisted price to rise during the fall. The price also took a pullback test and succeeded.
After a pullback, BTC made a high of 48k and then formed an intermediate . The blue trendline is supporting the rise. If the BTC breaks 48k , it can go to test the . If it breaks the blue and the intermediate trendline, it can test the 37k level. If the 37k level fails it may test the again.
We have a minor divergence in and is in the overbought zone.
As we analyzed the fall and rise of BTC , we understood before considering any position, confirmation is necessary.
This is just an education post and not investment advice.