How to use the tangent technique to judge the market trend?
introduction
introduction
No one tries a new drug without knowing the basic efficacy of the drug, and no one goes swimming in the river after simply reading a book on how to learn to swim. But in the field of investment, many people dare to enter this cruel market without any preparation.
In the field of encrypted digital currency, we found in the process of daily communication with many individual investors that investors like to use technical analysis methods to predict the future trend of the encrypted digital currency market, but they have really systematically studied technical analysis. There are very few investors, and there are not many individual investors who really make profits through technical analysis methods.Strictly speaking,Technical analysis is not a science, but a rule of thumb that generations of market investors have summarized and refined based on their own trading practices. The purpose of technical analysis is not to predict the market, but to require investors to carry out corresponding action essentials and action disciplines according to current market conditions.
As a discipline, technical analysis has nothing to do with forecasting in many cases. Therefore, when investors use technical analysis, they will find that profit taking and continuous small losses are common. But some investors can't bear these losses, so they continue to break this discipline, causing even bigger losses instead. The above phenomenon is very common among individual investors.
In order to better serve OK users, we started to set up the "Market Technical Analysis Report" section. While systematically describing some professional knowledge of technical analysis, we also made basic analysis and judgment on the future market situation.
1. Introduction to Technical Analysis - Tangent Articles
In the market research method of technical analysis, the concept of trend is absolutely the core content. Many of the tools used by analysts, such as support and resistance lines, trend lines, conduit lines, and price patterns, have the sole purpose of assisting the analyst in gauging market trends.
Generally speaking, we define an upward trend as a series of successively rising peaks or troughs; a downward trend as a series of successively descending peaks or troughs; and a horizontal extension trend as a series of horizontally extending peaks or troughs. According to Dow Theory, trends can be divided into three categories: major trends, minor trends, and transient trends. We can use the sea as a metaphor for these three trends: the main trend (also known as the major trend) is like the tide of the ocean, the secondary trend (or the middle trend) is the waves in the tide, and the short-term trend is the ripples on the waves. It should be emphasized that the division of the duration of the trend is mostly statistical and empirical, and the duration of the trend is different for different markets and different targets.
As shown in Figure 1, taking Bitcoin as an example, it is marked by a 4-year market cycle of Bitcoin, and each cycle includes a major upward trend and a major downward trend, and the duration of the major upward trend is usually 1-1.5 years The duration of the downward trend is about 2-3 years. In each major trend, there are secondary trends with a duration of about several months, while short-term minor trends are usually a few weeks or a few days, which are shorter-term fluctuations. From an empirical point of view, the short-term trend may be manipulated by human factors to some extent, while the secondary trend and the main trend are not easy to be manipulated by man.
Figure 1. Schematic diagram of the three cycles of Bitcoin
Support and resistance lines
Support and resistance are the two cornerstones of the field of technical analysis. On charts, support and resistance lines mean that at least a brief pause in the prevailing trend is likely.l Support line:
When the market falls near a certain price (trough, also known as the low point of upward rebound), the price stops falling and may even rebound. This price level, which (temporarily) stops the market from falling further, is called a support line.l Blocking line:
When the market rises near a certain price (peak, also known as the point where the price changes from rising to falling), the price will stop rising or even fall back. This price level that (temporarily) prevents the stock price from continuing to rise is called the resistance line.
Generally speaking, a support line means that a large amount of (potential or actual) buying is enough to hold back the price decline for a certain period of time, and a resistance line means that the volume of (actual or potential) selling is enough to satisfy all buying, so that in the Prevent the price from rising further for a certain period of time.So far, we have defined "support" as the previous low and "resistance" as the previous high. In practice, this is not always the case:
Whenever a support or resistance line is actually broken by a large enough price change, they reverse roles, in other words, a resistance line becomes a support line and a support line becomes a resistance line.In order to fully understand trend theory, we must actually grasp the concepts of support and resistance. In a market trend, whenever the market tests the support or resistance line of the previous stage, this trend is at a very critical moment: for example, if the upward trend is to continue, then each successive low point (support line) must be higher than The previous low (support line), each successive upswing high (resistance line) must also be higher than the previous high (resistance line).
Once the market cannot cross the previous support line in an upward trend, or the market cannot fall below the previous resistance line in a downward trend, it means that the current trend is about to change. As the market tests these support and resistance lines, it forms various price patterns.
Price patterns are divided into reversal patterns and continuation patterns. Reversal patterns include head-and-shoulders, triple tops, and double tops, and continuation patterns include triangles, flags, and wedges. Due to the limitation of the length of this article, here we only introduce the "head and shoulders" column, and the rest of the patterns will be explained in detail when encountering specific examples in the future.
Case: ETH "head and shoulders" reversal pattern
Figure 2 below shows the daily price chart of ETH from April to July 2018. The upward trend of this round of ETH started in early April. At point A on the chart, the uptrend continues as usual with no signs of reversing. When the price rises to a new height, the trading volume also expands correspondingly, which is normal; in the adjusted decline at point B, the trading volume decreases, which is also normal; however, at point C, vigilant investors may notice that when this When the round of upward trend breaks through the blocking level at A and reaches C, its trading volume has decreased compared with the previous round of upward trend. Although this change itself is not of great significance, investors should keep it in mind at this time A yellow warning light comes on. The price then falls back to point D, and the low point of this decline (point D) is lower than the previous high point A. We mentioned above that in an upward trend, once the resistance line at the previous high point is crossed upwards, it will play a supporting role in the subsequent market adjustment, but this time the decline is significantly lower than the resistance line at point A, indicating that The uptrend may reverse; subsequently, the market surges up to point E again. We know that if the upward trend is to continue to develop, each new high point must exceed the high point of the previous round, and the resistance line at point E is lower than the resistance line at point C, which meets the requirements of the new downward trend General Conditions --- Declining crests.From the above three signals (decrease in trading volume at point C, falling through the resistance line at point A, and failure to break through the resistance line at point C), we can be sure of one thing: the upward trend may reverse, at least into a horizontal extension trend.Smart investors should close their long positions a little after point E, but this is not enough to sell short.
If you want to know whether the market has reversed into a downtrend, you need a new indicator to confirm it, which is the trend line.
Figure 2. The "head and shoulders" of ETH from April to June 2018
Trendlines and Sector Principles
Trendlines are one of the easiest and most valuable basic tools we use in technical analysis. A trendline is a straight line that shows the price trend of a market. Mainly divided into uptrend lines and downtrend lines.l Uptrend line:
It refers to a straight line formed by two lowest price points formed during the upward trend in an upward trend.l Downtrend line:
It refers to a straight line formed by two highest price points formed during the downward trend in a downward trend.
Figure 3 Confirmation of the trend line
（1）When confirming the rising trend line, take the rising trend line as an example, as shown in Figure 3, we not only require the trend line to pass through the troughs of the first two waves (points 1 and 3 in the figure), but also require the trend line to go from point 3 The price level at point 2 can be crossed to confirm the validity of the trendline. Of course, under normal circumstances, we only need to ask the market to retrace 50% of the price change between point 2 and point 3 from 3 o'clock, or rise to a price level close to point 2, to confirm the validity of the trend line. As long as the third point is fulfilled, and the trend continues to develop in the established direction, then the trend line will be very useful. Trendlines can not only determine the extreme positions of prices during the market adjustment phase, but more importantly, they can show under what circumstances the original trend is changing:Support or block boundaries:
（2）In an uptrend, a corrective decline is inevitable, but it often touches or is very close to the corresponding uptrend line. Since the purpose of traders is to buy on dips in an uptrend, an uptrend line provides a support boundary below the market and can be used as a buying zone, while a downtrend line can be used as a resistance zone for selling purposes.Warning signs:
（3）Once the trend line is broken by the market price, there will be a signal of a trend change, which means that investors must close their positions in the direction of the original trend.Trendline roles reversed:[1]
Once the upward trend line (support line) is decisively broken down, it will evolve into a resistance line; once the downtrend line (resistance line) is decisively broken, it will evolve into a support line.
Now we come to the fan principle, which is another use of trendlines. As shown in the figure below, when the upward trend line was broken, the price first fell, and then rebounded to below the 1-line again, but failed to cross the 1-line upwards. At this point, we can draw a new trend line (line 2); then line 2 also breaks down, and then the price rebounds again, and the test of line 2 fails, so we get the third trend line (line 3); If the three trendlines are broken again, it usually means that the price will fall.It can be seen from the above that the original support line becomes a resistance line after being broken through, and the three straight lines that become gentle in turn in the figure are like a fan, hence the name of the fan-shaped principle.
Among them, the breakthrough of the third trend line is an effective signal of trend reversal.
Figure 4 Confirmation of the trend line
Case: Application of Fan Principle in EOSFigure 5 is the 3h chart of EOS in July 2019. When the market reaches point B, we draw the first trend line (line 1 in the figure); when the market reaches point N in the figure, due to the The price is lower than 50% of the retracement of the price change between point M and point B, so we can judge that line 1 in the figure is an effective upward trend line; Buy EOS before and after; when the market price of EOS reaches point D, it breaks through line 1 and falls to point E; at this time, when the market price returns to the peak point F, it is judged that line 1 has become the current market price. For this reason, we draw line 2 through point A and point E; similarly, we can draw line 3 through point A and point G through the price judgment of point I;
When the market hits line 3 at J, investors should sell EOS and leave the market; then, as we judged, EOS plummeted.
Figure 5 EOS 3h price chart in July 2018
pipe linePipelines, also known as return lines, are another application of the trendline technique. The practice of the pipeline line is relatively simple. As shown in the figure below, in an upward trend, we first draw the basic trend line along the low point, and thenStarting from the first significant peak (point 2)
, and its parallels are drawn with dotted lines. Both straight lines extend to the upper right and together form a pipeline. If the next rally reaches the channel line and turns back (point 4), then the channel is generally established; if this retracement continues to fall back to the original trend line (point 5), then the channel is basically confirmed. In a downtrend, the situation is similar to that of an uptrend, but in the opposite direction.
Figure 6 Pipeline practicePipelines have many advantages:
The basic upward trend line is the basis for opening new long positions, while the pipeline line can be used as a reference for short-term closing profit. We can use the pipeline line to establish a short position opposite to the trend direction (although this reverse strategies that trade in the direction of popular trends can be dangerous). Also, the longer the pipeline is untouched, the more successful the trial, the more important it is to be reliable.In addition, we can also use the pipeline technique to identify signs of a weakening trend, which is when the price fails to reach the pipeline line.
In Figure 6, the inability of the price to reach the top of the channel (point 5) is a warning sign of an imminent trend change, showing that the other line (the basic uptrend line) has been broken more likely.
The pipeline line also has measurement significance. Once a breakthrough occurs on the two sidelines of the price pipeline, the price will usually follow the direction of the breakthrough to reach a distance equal to the width of the pipeline. Therefore, we can simply project along the direction of the breakthrough from the breakthrough point on the sideline of the pipeline according to the width of the pipeline to get the price target.
Case: Application of pipelines in BCH
Figure 7 BCH daily chart from May to November 2018
Figure 7 is the daily chart of BCH from May to November 2018. Through the pipeline, we can see that after entering the end of August, the market did not reach the pipeline in June, indicating that the original trend may end, and then the market in Moving into the next trend in July, this shows that the downtrend of BCH is gradually slowing down.
market prediction[2]In this section, we will use the technical analysis tools learned above to judge the future trend of the digital currency market. This market forecast mainly focuses on the short-to-medium term trend of the three mainstream currencies of BTC, ETH and EOS
1.BTC
. The volatility of the digital currency market is too high, so using the daily chart analysis in the short-to-medium term will miss important signals; and the digital currency market is 24h trading, and choosing a k-line chart within 1h will contain a lot of invalid information; therefore, when choosing a K-line When charting, this article recommends that investors choose 4h or 3h K-line charts for analysis.Figure 9 shows the 4h K-line chart of ETH in April 2019. BTC exhibits an "expanding pattern" (aka "horn shape"). This form is a continuous form, which is relatively rare in the market. In the expanding pattern, the two side lines gradually separate, showing the outline of an expanding triangle. In the expansion pattern, the trading volume increases correspondingly with the increasing price shock. This situation shows that the market has lost control and become extremely emotional.
Because this form represents a relatively active situation in which the public participates in trading activities, it occurs at the top of the market for the longest time, so it is usually bearish. As judged by technical tools, BTC broke through the lower line on the 29th (point F ). Since the high trumpet-shaped exposure is not very large, it means that the trading shock is relatively small. Therefore, if the BTC price falls in the short term, it will generally fall slightly, unless there is a new signal to correct our judgment.
2.ETH
Figure 8 BTC 4h candlestick chart since April 2019Figure 9 shows the 4h K-line chart of ETH in April 2019. ETH formed a "triple top" reversal pattern in the middle and late April. Specifically, the prices of the three peak points A, C, and D of ETH in the figure are roughly on the same horizontal line. In the triple top, the trading volume of ETH in the first two peaks gradually decreases, and suddenly increases when it breaks down; from the figure, we can clearly see that from April 19th to 24th, the trading volume of ETH The trading volume gradually decreased, and on the 26th the market ushered in a sharp drop, and the trading volume expanded accordingly. At present, ETH has broken through the neckline (support line) formed by the two troughs of B and E at point F,The triple top pattern has been completed, indicating that the ETH market trend has reversed, and ETH is in a downward trend or a horizontal extension trend in the short term.
Around April 29th, that is, point G in the figure, ETH counterattacked. At this time, the neckline has changed from a support line to a resistance line. Therefore, the price of ETH on the 29th did not cross the neckline, and then turned down. , in the short term, the original neckline will still become a resistance line for the price of ETH to rise, and if it breaks through the neckline, it indicates that a new trend may emerge.
3.EOS
Figure 9 ETH 4h K-line chart since April 2019Figure 10 shows the 4h K-line chart of ETH in April 2019. When we use the fan-shaped principle for analysis, we find that the current market price of EOS has broken through the second trend line formed by line AC, but has not yet broken through the third trend line formed by AD.
In the future, if the price of EOS continues to drop and crosses the third trend line, it indicates that the trend of EOS may undergo an important reversal (at least into a horizontal line extension trend).
[1]Figure 10 EOS 4h K-line chart since April 2019
[2]Effective breakthroughs generally use the 3% principle, but in view of the high risk of the digital currency market, we recommend using the 5% principle, that is, when the price of jewelry crosses the trend line by at least 1 or 2%, it can be judged as an effective breakthrough.
