Credibility filter for cryptocurrencies (part 2)
Dear friends,
In my last article, I described quite a simple filter that will help even a beginner identify whether a certain altcoin is worth buying or not. I just want to say it is not a trading system and doesn’t provide any trade signals. This tool performs only a single, but very important, task: to identify among all that diversity of altcoins those, which attract a lot of buyers and are worth investing.
As the crypto market will stop falling down sooner or later, and the first matter for any investor will be where to invest their capitals. In this article, I’m going to apply this filter in practice and find out which cryptocurrency asset we should pay our attention to. I’ll note, I developed this filter by myself, but I’m not ruling out that one of the numerous books on trading may describe something similar.
So, I’d like to insert the disclaimer in the beginning that all the similarities with other authors’ tools in my previous and present posts are accidental.
I started testing this filter not that long ago and have applied it only to cryptocurrencies. Use of this filter in other markets is an open question. But, taking into account the basic rules and concepts of the market, it is likely to be of use at least in the stock market. The only limitation, I should mention in the beginning, is that the filter is appropriate for only long timeframes, starting from one day. Application of the filter to shorter timeframes won’t provide a fair view, as the cryptocurrencies moves inside a day can differ a lot due to intraday speculations of big traders.
So, let’s move on directly to the filter:
Step 1. Identify the market benchmark (trading instrument in the form of a large company – the leader of a market or a stock index that approximately reflect the market general trend).
To start using the filter, the first that you need is to identify the market benchmark; in the stock market it is, as a rule, a stock index. In the cryptocurrency market, the benchmarking indicator of the market general trend is Bitcoin.
Step 2. Mark in the Benchmark 1D chart the last four price lows with different colors.
Pay attention that the more recent is the level, the stronger it is, compared with the others. That is why, it is important to follow the lines’ order in the chart and their location relative to the ticker. Different colors will help you do it.
Step 3. Study the ticker location relative to the levels.
• Identify the ticker’s location relative to the last low (in our case, it is orange).
• Identify the location of the orange level, compared to the previous low.
• Identify the number of levels above the ticker and below it at the current moment.
In the chart above, you see:
1. The ticker is higher than the last low (orange level).
2. Orange level is lower than the previous low (green line).
3. There is one level above the ticker/there are three levels below the ticker.
Having found out these three items, we have made up so-called market profile that is of use by itself, as it helps us assess the general market situation.
I’ll explain on the items:
1. Breaking through the closest support level is a crucial event, as at this level, there all stop orders of the short-term and middle-term traders, and so, their working out means that the market is rather weak. If this level is broken out in the uptrend, it is one of the strong trend reversals signals.
2. The location of the last local low relative to the previous shows the stage of the trend development. If the last low is lower than the previous one, it means that the bearish trend is extending and vice versa, if the last low is higher than the previous one, it suggests that there are buyers and either a consolidation, or a bullish trend develops.
3. Levels above the ticker are the resistance levels, and the levels below the ticker are the support levels.
Therefore, the more levels are below the ticker and the fewer ones are above it, the more are the support levels, the more investors are confident and the more promising is the market.
Step 4. Identify the lows for the studied trading instrument (make the instrument profile).
I suggest EOSUSD pair as an example. We mark the lows according to same pattern as for the benchmark; the deviation mustn’t be more than 2-3 bars. If for the instrument you’re analyzing, the lows are where the benchmark’s highs are, there is a negative between the benchmark and this instrument, so, you can’t apply this filter to it
In our case, everything is all right.
Finally, we see the following situation:
1. The ticker is lower than its last low (orange level).
2. Orange level is higher than the previous low (green line).
3. There are two levels above the ticker/there are two levels below the ticker.
Step 5. Compare the instrument profile with the market profile.
Finally, there is the main step, the culmination, of our analysis.
Let’s compare EOS performance with the benchmark, Bitcoin.
It is quite easy.
Remember, for Bitcoin, it is like this:
1. The ticker is higher than the last low (orange level).
2. Orange level is lower than the previous low (green line).
3. There is one level above the ticker/there are three levels below the ticker.
and for EOS it is like this:
1. The ticker is lower than its last low (orange level).
2. Orange level is higher than the previous low (green line).
3. There are two levels above the ticker/there are two levels below the ticker.
The conclusion is the following:
1. BTC: the ticker is higher than the last low / EOS: the ticker is lower than the last low.
2. BTC: orange level is below the precious low / EOS: orange level is above the precious low
3. BTC: There is one level above the ticker/there are three levels below the ticker / EOS: There are two levels above the ticker/there are two levels below the ticker.
Therefore, EOS is behind Bitcoin in two points out of three, so we can conclude that EOS performs worse than the market, and is less promising than Bitcoin, in investment terms. With such comparative analysis, there can be situations when the analyzed instrument has the same number of advantages as the benchmark; if so, the last, third point is the most important to decide which asset is better.
If the number of the suggested advantages for the analyzed asset and the benchmark is the same, such asset is considered to be investment-worth and interesting for investors. Such analysis, of course, can’t be limited by a single instrument. To understand how bad is the situation of a certain asset. You need to analyze at least three or four assets in the same market segment (it is more convenient to present it like a table).
In the end, just in case, I’ll again note that this filter doesn’t provide any buy or sell signals for a certain asset. If EOS performs worse than the market, it doesn’t means that it won’t be able to surge in near future or even be ahead of the benchmark by its momentum. This filter is just a try to find out the fundamental situation for a certain instrument by means of technical analysis; it is more like a tool for long-term investing, rather than for short-term speculations.
Good luck and good profits!
Best regards,
Mikhail @Hyipov
PS. If you agree with the forecast write “+” in the comments, if you don’t agree, put “-”. If you liked the post, just write thank you, and don’t forget to share the post with your friends. It is easy for you and I will be very pleased :)
Stay informed on the latest cryptocurrency news, follow my posts in the blog.
In my last article, I described quite a simple filter that will help even a beginner identify whether a certain altcoin is worth buying or not. I just want to say it is not a trading system and doesn’t provide any trade signals. This tool performs only a single, but very important, task: to identify among all that diversity of altcoins those, which attract a lot of buyers and are worth investing.
As the crypto market will stop falling down sooner or later, and the first matter for any investor will be where to invest their capitals. In this article, I’m going to apply this filter in practice and find out which cryptocurrency asset we should pay our attention to. I’ll note, I developed this filter by myself, but I’m not ruling out that one of the numerous books on trading may describe something similar.
So, I’d like to insert the disclaimer in the beginning that all the similarities with other authors’ tools in my previous and present posts are accidental.
I started testing this filter not that long ago and have applied it only to cryptocurrencies. Use of this filter in other markets is an open question. But, taking into account the basic rules and concepts of the market, it is likely to be of use at least in the stock market. The only limitation, I should mention in the beginning, is that the filter is appropriate for only long timeframes, starting from one day. Application of the filter to shorter timeframes won’t provide a fair view, as the cryptocurrencies moves inside a day can differ a lot due to intraday speculations of big traders.
So, let’s move on directly to the filter:
Step 1. Identify the market benchmark (trading instrument in the form of a large company – the leader of a market or a stock index that approximately reflect the market general trend).
To start using the filter, the first that you need is to identify the market benchmark; in the stock market it is, as a rule, a stock index. In the cryptocurrency market, the benchmarking indicator of the market general trend is Bitcoin.
Step 2. Mark in the Benchmark 1D chart the last four price lows with different colors.
Pay attention that the more recent is the level, the stronger it is, compared with the others. That is why, it is important to follow the lines’ order in the chart and their location relative to the ticker. Different colors will help you do it.
Step 3. Study the ticker location relative to the levels.
• Identify the ticker’s location relative to the last low (in our case, it is orange).
• Identify the location of the orange level, compared to the previous low.
• Identify the number of levels above the ticker and below it at the current moment.
In the chart above, you see:
1. The ticker is higher than the last low (orange level).
2. Orange level is lower than the previous low (green line).
3. There is one level above the ticker/there are three levels below the ticker.
Having found out these three items, we have made up so-called market profile that is of use by itself, as it helps us assess the general market situation.
I’ll explain on the items:
1. Breaking through the closest support level is a crucial event, as at this level, there all stop orders of the short-term and middle-term traders, and so, their working out means that the market is rather weak. If this level is broken out in the uptrend, it is one of the strong trend reversals signals.
2. The location of the last local low relative to the previous shows the stage of the trend development. If the last low is lower than the previous one, it means that the bearish trend is extending and vice versa, if the last low is higher than the previous one, it suggests that there are buyers and either a consolidation, or a bullish trend develops.
3. Levels above the ticker are the resistance levels, and the levels below the ticker are the support levels.
Therefore, the more levels are below the ticker and the fewer ones are above it, the more are the support levels, the more investors are confident and the more promising is the market.
Step 4. Identify the lows for the studied trading instrument (make the instrument profile).
I suggest EOSUSD pair as an example. We mark the lows according to same pattern as for the benchmark; the deviation mustn’t be more than 2-3 bars. If for the instrument you’re analyzing, the lows are where the benchmark’s highs are, there is a negative between the benchmark and this instrument, so, you can’t apply this filter to it
In our case, everything is all right.
Finally, we see the following situation:
1. The ticker is lower than its last low (orange level).
2. Orange level is higher than the previous low (green line).
3. There are two levels above the ticker/there are two levels below the ticker.
Step 5. Compare the instrument profile with the market profile.
Finally, there is the main step, the culmination, of our analysis.
Let’s compare EOS performance with the benchmark, Bitcoin.
It is quite easy.
Remember, for Bitcoin, it is like this:
1. The ticker is higher than the last low (orange level).
2. Orange level is lower than the previous low (green line).
3. There is one level above the ticker/there are three levels below the ticker.
and for EOS it is like this:
1. The ticker is lower than its last low (orange level).
2. Orange level is higher than the previous low (green line).
3. There are two levels above the ticker/there are two levels below the ticker.
The conclusion is the following:
1. BTC: the ticker is higher than the last low / EOS: the ticker is lower than the last low.
2. BTC: orange level is below the precious low / EOS: orange level is above the precious low
3. BTC: There is one level above the ticker/there are three levels below the ticker / EOS: There are two levels above the ticker/there are two levels below the ticker.
Therefore, EOS is behind Bitcoin in two points out of three, so we can conclude that EOS performs worse than the market, and is less promising than Bitcoin, in investment terms. With such comparative analysis, there can be situations when the analyzed instrument has the same number of advantages as the benchmark; if so, the last, third point is the most important to decide which asset is better.
If the number of the suggested advantages for the analyzed asset and the benchmark is the same, such asset is considered to be investment-worth and interesting for investors. Such analysis, of course, can’t be limited by a single instrument. To understand how bad is the situation of a certain asset. You need to analyze at least three or four assets in the same market segment (it is more convenient to present it like a table).
In the end, just in case, I’ll again note that this filter doesn’t provide any buy or sell signals for a certain asset. If EOS performs worse than the market, it doesn’t means that it won’t be able to surge in near future or even be ahead of the benchmark by its momentum. This filter is just a try to find out the fundamental situation for a certain instrument by means of technical analysis; it is more like a tool for long-term investing, rather than for short-term speculations.
Good luck and good profits!
Best regards,
Mikhail @Hyipov
PS. If you agree with the forecast write “+” in the comments, if you don’t agree, put “-”. If you liked the post, just write thank you, and don’t forget to share the post with your friends. It is easy for you and I will be very pleased :)
Stay informed on the latest cryptocurrency news, follow my posts in the blog.
About Me and My life
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ovalapp.bio/michael
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