Technical Analysis for Cryptocurrency Day Trading

Day trading crypto can be very profitable but it requires a hands-on approach. You have to decide on your trading style and master technical analysis. Grow an informed understanding on these two components before getting your feet wet to get the best results.

We will walk you through the fundamentals of technical analysis in a moment.

Before we get started…

Should You Leverage Trade or Not?

What is trading leverage

Most day traders execute smart trades based on technical analysis. They can accurately predict price movements within a short period of time. It is because of their understanding in chart reading and pattern recognition that they can win on almost every trade.

However, being a successful trader is not only about calling the right entry and exit positions. Another big factor is maximizing your gains (profits) and that’s where leverage trading can make a world of difference. The most profitable traders use at least some leverage — anywhere from 5x to 20x is recommended when actively day trading crypto.

When leverage trading, you are borrowing funds to increase your investment risk in return for a higher potential reward. A leverage of 20x would mean that every $100 gives you $500 to trade with and it would take a 5% price movement to double or bust your investment.

A Note on Crypto Bankroll Management

Cryptocurrency trading bankroll management

Feel free to day trade with 100% of your investment capital if you do not use leverage. The potential loss on a bad call is marginal without it and there’s less to lose on any one trade. Crypto bankroll management is more important when you do expose yourself to leverage trading — or if you invest in ICOs or hold altcoins long-term.

Leverage trading sounds scary because a small price movement can wash away your funds. The truth is that most people utilize bankroll management to make these high risk plays possible without endangering their entire investment fund.

We recommend (along with others) that you never put more than 10% of your invest capital into a single high-leverage trade. At 20x all it takes is a 5% price movement out of your favor to lose whatever you risk. Of course, 5% in your favor is pretty easy to achieve — especially when you understand technical analysis. Play it smaller and never risk busting your roll, because the high volume of winners will generously reward you in the end.

You might be saying “but I only have $500 to invest, what’s the good in playing with $50 at a time?” You need to realize how a single play can move against you. 10 failed trades at 20x leverage is very unlikely if you know how to trade. However, two missed calls is likely enough and at $250 per trade that would leave you broke. Then, you have to ask yourself whether you’re comfortable with depositing more to try again.

Remember, you’re a beginner and it’s through real experience that you become a better trader. Learn from experience and increase your investment exposure when you manage to double or triple your initial investment. After you get confident in your trading skills, sometimes it will be okay to risk a higher percentage of your capital. At that point you will know when you can be exceedingly confident about a price movement that’s starting to play out.

Another important point – you should not “roll your winnings” into your next investment. It’s easier to grow your funds by having more smaller wins. For example, $500 becoming $800 is a 60% gain but $800 becoming $500 is a 37.5% loss; it’s easy for one wrong trade to put you many steps back.

Bearish or Bullish – Know the Market You’re Trading

Bear Vs bull market graphic

We’ll get into the technical analysis variables next…

Before you start to trade, it’s important to know the difference between “bearish” and “bullish” markets. You wouldn’t believe it but — Bitcoin was trading with lows around $200 when it was last in a true bear market. That was back in late 2015.

Bear and bull markets do not take shape throughout the course of a day. It’s not something you will normally consider when making day trading decisions. However, it’s a long-term variable that can still impact your decisions.

We’re going to provide many examples based on the price movement in late February to early March 2018. This period is when Bitcoin came back from its $6,000 low after forming a $19,000+ all-time high. It’s price action that most of you witnessed and a perfect example that you can make lots of money betting on the price going down too.

Look at what happened to Bitcoin’s price…

Weekly Bitcoin Chart

One week Bitcoin trading volatility

What you see is Bitcoin’s price running up from the summer of 2017 to reach its peak in the winter. As you likely know, the price reached an all-time high of over $19,000 by the end of the year. We never really saw the market come back down until after this top was found.

Now, we want you to understand this chart better. Weekly candles aren’t always the most predictable but they do tell the best stories. 

Here’s what you need to know…

You see those two lines that follow the price movement? The top line (in blue) is referred to as the “upper band” and the bottom line (in yellow) is referred to as the “lower band”. These are the “bollinger bands” and they dictate the price channel.

Note: Do not rely solely on bollinger bands when determining the price channel. You should also draw trend lines yourself. To do so, mark as many highs with an upper line as possible and do the same for lows with a lower line.

Bollinger bands are made up of moving averages. The image above shows gives a 7-day moving average for the blue line and a 30-day moving average for the yellow line. These levels are not commonly mentioned — you’ll hear more about 50, 100 and 200-day emas (exponential moving averages) — but the 7 and 30-day intervals are better near-term indicators.

Determining “bullish trends 

What do we want to see? Simply, the lower band needs to stay low while the upper band stays high. We want to see trading take place either within or above this range (price channel). Below is an example of what a bullish price channel looks like.

How to identify bull trend

You can see higher highs and higher lows which is the basis of a bull trend (the opposite — lower highs and lower lows — will occur in a bear trend). The market believes the price is set to keep lifting up. Thus, people find value in buying at the support and they start purchasing as the price gets near that bottom line. The safe entry point keeps going up until the price breaks down below it.

A day trader would attempt to buy near the support and sell when the price is around the previous high point. A trader might also enter into a long position if the price breaks out and finds support above one of these highs.

Determining “bearish trends”

Now let’s draw this together and form a bigger understanding on how trends work. We’ll look at the price channel leading into the last candle on that weekly chart we showed you.

First, the move up…

Determining bear trend in crypto trading

This is a Daily chart. We saw the price find support along the upper band through November and December as the market reached an all-time high. Regardless of how strong the trade was on the way up, the downward movement was very much predictable.

What happened?

The upper band support broke and the lower band became the price target. This zone was tested as a support but the market moved up so rapidly that it needed an incredible recovery to keep going at the same pace. We saw the bands cross around the $14,500 mark.

The price found support around the lower band for a short while but failed to create a true support above it. As a result, the previous bull run failed to return and a price discovery took place at lower price points.

Here’s what happened next…

Bitcoin falling trade trend

You’re looking at another Daily chart. This one shows price action since the start of 2018, following Bitcoin’s close recovery to it’s all-time high. A failure to recuperate from the strong uptrend resulted in an equally strong downtrend. Prices dropped all the way from $19,000+ to a $6,000 low in a little over a month.

Some very important takeaways from this chart…

  1. A “return to bull trend signal” took place when the bands crossed back and held up on the first support test.
  2. A “return to bull trend confirmation” took place when the upper band held as a support for the first time.
  3. A break of the upper band support resulted in a rapid price deterioration, like we saw in the Weekly chart earlier when the same support line broke.
  4. If the price sustains this down move for a few more days, the lines will cross again and signal a continued bear market which would lead to a re-test of the $6,000 low.
  5. The price found heavy resistance close to the $12,000 mark where it also struggled to overcome on the way down to $6,000
  6. If the price found support above $12,000 the market would’ve found confirmation that it switched to bullish again.

The interesting thing is that many day traders bought the hype. Those two daily red candles resulted in countless $1 to $10 million liquidations on Bitmex, as well as countless other leveraged trading losses elsewhere.

Everyone thought their investments were safe when the price gradually explored higher after the $11,000 level was breached. The market had only switched to “bull” but an overwhelming majority were already calling $14,000 to $17,000 as the next target.

What to learn from such a unique circumstance

learning and productivity graphic

You would be one of the very select minority if you played these moves right. The crash happened much later than expected and everything looked healthy beforehand. The best move might have been to sit out of the market for a little bit.

It’s easy to get caught by false signals when bollinger bands are wavy. Your goal is to find a predictable price channel and play that range. The market found a low at $6,000 which was easy to notice at the time. Trading upward move was safe until the lines crossed back to normal. At this point, Bitcoin had much to prove before recapturing a natural upward price channel.

We know you can’t sit out the most volatile moments as that’s what a day trader profits from the most. The only way to safely trade any price action is by understanding how to read candles and where to place your stop-losses.

Let’s focus on those two things now that you’ve learned about reading trends.

Candles to Watch for When Day Trading Crypto

Candles are signals of price movement. Some candles are bullish or bearish, while others are neutral. The level of bullishness or bearishness they indicate is not only dependent on the candle type but also its timing. While it’s important to know candles by definition, you should not consider reading candles to be an exact math.

Anyway, here is the same candle but in its bullish and bearish versions…

Bullish and bearish candlesticks

The green candle is bullish and indicates the price increased from when it “opened” to when it “closed”. If you’re reading a Daily chart, that means the start of the day is when the candle opened and the end of the day is when it closed.

The low and high points are shown as “wicks” on these candles. The further the green drives to the high the more people seem confident about the uptrend within that time interval. The further the low drives to the bottom the more confident people are in betting on downward movement.

A single candlestick will not tell you the full story. You must look at a candlestick chart, like the images we’ve supplied in our earlier examples.

Verify Candle Meaning by Trading Volume

You also need to consider the trading volume behind these price moves. If the market moves up with low volume there isn’t confirmation that the candle is a true indicator. Typically, the RSI (relative strength index) will serve as a good indication of volume verification.

RSI levels will move up toward overbought territory (70 and up) during a momentous upward move. A move down toward oversold territory (30 and below) will put more confidence in a momentous downward move.

Types of Candlesticks

“Bullish Hammer”

Chart showing bullish hammer

We saw a bullish hammer when the $6,000 low hit. This candle occurs after a major downtrend, when the market tries to aggressively drop the price but is met with buying volume. The wick heads ultra low (price spikes down a lot) but the body of the candle stays near the top. The reason is because a large sell-down occurred, but the market recovered from that low point and closed the day close to or above where it opened. A bullish hammer can be either green or red, it doesn’t matter because the fast recovery from the major low is what counts.

“Inverted Hammer”

Illustration of trading inverted hammer

This hammer is bearish and signifies a failed attempt for the market to recover. Whether red or green, it tells the same story — the bulls gained no ground when trying to violently push up the price.

However, because the bulls are becoming courageous it is important to not enter any more short positions when you spot this candle. Also, watch out for the incoming uptrend and look for a good chance to go long in the near future as buy volume is entering and a support level and price bounce will soon occur.

“Hanging Man”

Illustration of trading hanging man

We see this candle when the market is working its way up and suddenly gets overbought. It’s a bullish indicator because it shows that, even though sellers showed up and created a sell-off wick, the buyers held the price up. While it’s a positive indicator, we use this as a hint that there will be a short-term support test. Hold off on buying in and wait for a second sell-off to occur at a level below the wick of the Hanging Man candle to get a better entry.

“Doji Candles”

Illustration of trading Doji Candles

A doji candle occurs when there’s an attempt to both move the price up and down but the market ultimately consolidates in the middle by the time the candle closes. Sometimes these candles are nothing more than white noise. 

However, it’s often an indication that either bears or bulls have true control over the market. You cannot trade well off dojis but you can expect them to be followed by more violent price action. Be cautious at this time as the market feels very undecided when doji candles populate the chart.

“Confirmation Candles”

You will find a confirmation candle when a resistance or support is successfully broken. The first candle will move through the threshold while the confirmation will hold the fresh range. If resistance breaks, the green candle will stay above the previous resistance line (turning it into a new support level). If support breaks, the red candle will stay below the previous support line (turning it into a new resistance level). 

Make sure the confirmation candle is paired with a spike in volume. If it’s not, a quick and harsh reversal will likely happen. The market’s confidence needs to be high when attempting to break out. A failure of volume is indication that its the wrong time or the wrong direction for the current market.

Turning Candlesticks into Patterns for Trading Decisions

Candlesticks take shape to form patterns. It’s when you can read the patterns that you’re able to make more educated trading decisions. These patterns are indicators of where the price is the heading, while the candlesticks themselves tell you why the price is where it is now.

Below are some of the more important patterns to remember when day trading crypto.

Elliot Wave Theory

“Elliot Wave Theory” These fundamentals are a primary factor in determining when the market is primed for more upward momentum. This trading method is most prevalent when predicting move sizes over a long-term chart.

The most common Elliot Wave pattern features five ways. Below is an image that shows you a standard 5-wave Elliot Wave pattern and some rules it must abide by to be correct.

Elliot Wave Theory trading rule chart

If the wave reaches for support, an A-B-C pattern will play out. If it breaks to the upside there will be an attempt to keep the five way cycle going, but if it breaks down there will be a downtrend until A-B-C waves form and break out. The market will also look for a successful A-B-C wave pattern before attempting to recover when the price tumbles down after a finished fifth wave.

Failed trading breakout example

In the image above, you see a failed A-B-C breakout.

*This type of technical analysis is the hardest to master. Those that perfect it are able to make highly profitable trades solely based off of reading waves and predicting movement size through fibonacci retracements. Don’t invest based off of the Elliot Wave Theory until you’ve spent many hours reading, watching videos and “paper trading” successfully with this strategy.

Fibonacci Retracement Levels

Fibonacci retracement levels are ratios at which markets look out for as potential spots to find resistance and support. In the image below, you see the ETH/BTC ratio peak at 0.126 before tumbling down more than 35% in less than two weeks. During this timeframe, the market had little bounces at 0.618 and 0.786 retracement levels. The upward movement from those bounces were capped around other fib levels.

Bitcoin Fibonacci Retracement Levels

If the market pulls back to the start of the pump (where you want to measure from) it will be a 1:1 ratio. Extended fib levels run beyond this level, which you can see from the retracements calculated beyond the start of the pump.

Fibonacci retracements are used to calculate movement both in a bull and bear market. You want to use this tool by starting at the peak when calculating how far down the price might go before trying to find support. Typically, it’s good to enter into a position with tight stops when the price stops falling at the 0.618 and 0.382 levels. 

Here are the fib retracements that can happen while respecting a five-wave Elliot Wave pattern, as well as ratios to watch for in A-B-C movements.

 Fibonacci Retracement wave table

So, if the price is in an upward trend… What do you do when you notice Wave 1 formed? On the way down, look for entry points at 0.618, 0.5 and 0.382 and go long.

We don’t recommend attempting to blindly buy at the 0.5 mark. This level is the hardest to profit from because it often retests 0.382 (leaving no room for tight stop-losses) and if 0.382 breaks and Wave 1 is called off, the losses would be substantial.

A bounce at 0.382 will shoot us into Wave 3 (usually the largest and fastest wave) and we’ll be in a great spot because Wave 4 won’t correct below the top of Wave 1, which means our stop-loss won’t get hit.

Figuring out Elliot Wave and fibonacci retracement levels will give you the chance to spot bigger trends at play. The profit opportunities on these movements are much safer to day trade. We’re next going to give some patterns that are only “trends within trends”… These indicators are a bit more dangerous, but if you want to scalp trade them it can still create plenty chances to profit.

Bullish Pennant

The bullish pennant is a strong mark for a chart to have as it signifies no fear in pricings going up. This movement helps push a price higher in a wave and, when the pattern is certain, the upside potential on these trades is significant.

Bullish Pennant trading example

This move starts with a sizable price increase on volume. The price sustains closer to the top end of the range. The lows will keep going up without the price breaking down and the highs will continue to get higher. If the price fell out of this channel it could quickly send the market down below the start of the bull pennant as the blue arrow indicates.

In the picture, the dotted green line marks the highest price which you can see was on a candle wick. Now a green candle body is passing through it which means another new high is happening — if it breaks the upper yellow line (top end of upward trading channel) it will signify that a rapid price increase will happen very soon.

Note: A bullish pennant is a type of flag — the most bullish kind. If you enter a long when it first starts you can place a stop-loss around breakeven and switch to a short it the movement falls apart. In both positions, you’ll have a high likelihood of coming out a big winner.

Bearish Pennant

A bearish pennant is a major signal for the market to head down fast and hard. The technicals of this movement show that continuing attempts to make a “higher high” lead to failure. The bulls finally give up and the bears take over — sending the price down below its previous low point.

Bearish Pennant trading example

A bearish pennant plays out the same as a bullish one but in reverse. The pennant remains intact so long as the highs keep getting lower and the price remains suppressed below the trendline that connects with the start of the flagpole. If the lows fail to keep getting higher the price will crumble and explore a new low. However, if the upper trendline is broken a swift upward movement will play out.

You might be wondering how we can so accurately predict a breakdown or breakout when the trendline is broken. Sometimes the market doesn’t play out like the textbook pictures show. If you look at more indicators a failed pattern will make more sense. For example, the chart might break to the upward on low volume but fail to get a confirmation candle and then fall below the whole triangle in a swift move.

Bull and Bear Flags

Bull and bear pennants are striking forms of flags. Those patterns tell a story that the market wants to believe. The bull and bear flags are sometimes more inconspicuous.

Bull and Bear Flags trading example

The image above shows you the difference between flags and pennants. As you can see, a bull flag can form with a flagpole and then sideways movement close to the top. The “triple bottom” you see is very bullish as it shows a certain price has continuously held up as support. If a “triple top” forms, the price could start a downward wedge or the whole upward move might reverse.

Cup and handle (bullish)

A cup and handle signifies bullish growth over a longer timeframe. The Daily or Weekly chart is used for this purpose; the mandatory minimum time period to form a cup and handle is seven weeks. It’s also possible for this pattern to stretch on and only come to completion after months or years.

Bull cup and handle trading example

The top of the cup is formed at the beginning after an uptrend with a 30% or greater movement. The trend will switch bearish while correcting and the baseline of the cup will form at around a 15% to 30% retraction. When the market turns overly bearish for a period — especially if the pattern runs for months or years — a base depth of up to 50% is possible.

See what happens when the handle forms? The market made a “double top” and the trendlines for the second top are put in place. The idea is that this downward channel will be respected by the market because the double top was a signal that we couldn’t push higher. It’s when the price breaks out with conviction and nullifies the downward channel that we see a continuation beyond the market’s previous high point.

If the cup and handle fails to break out, what will happen?

From a fundamentals perspective, the market will likely have a steep drop and then attempt to recover. Ultimately, the baseline of the cup will be tested and forcefully broken. At that point, the base will become a new point of resistance and the market will try to push for new lows.

Cup and Handle (Bearish)

Bearish cup and handle patterns also exist. Those are harder to identify and don’t always result in violent moments, while the bullish C&H tends to have a more aggressive outcome. We recommend you still watch out for this pattern in a bear trend though as it’s a good indicator of a double top and a likely continued downtrend.

Below is an image of a bearish (“inverted”) cup and handle pattern.

Bear cup and handle trading example

This chart could’ve went very positive. If the handle trendline was broken to the upside the previous peak depth would’ve been tested. By surpassing that range and creating a new support, a reversal would’ve been confirmed.

However, the inverse cup and handle is hard to break out of because the handle implies a non-momentous upward movement. Most reversals have a fast and hard rebound (with volume) and the trading channel quickly becomes near or above the previous peak. Since the handle formation requires a gradual upward move to form the channel (and then the breakout), it’s almost always met with a harsh price drop.

We’re actually seeing Bitcoin experience a perfect inverse cup and handle right now. The Weekly chart shows the cup starting in November 2017 when Bitcoin went over $5,000 and the price kept going up to its all-time high. That was 17 weeks ago, which means we’ve exceeded the 7 week minimum time requirement for the C&H pattern to take shape.

Here’s what we’re talking about…

Cup and handle pattern forming in bitcoin market

The large red wick down was when the $6,000 low happened during the first week of February. The handle of this C&H pattern starts after that candle. The second large red wick came from an $8,342 low. The second low was higher and gave us a channel to draw trendlines on. Now, we’re anticipating for the market to respect this channel and either break out up or down accordingly. 

A decisive decision will come very soon. We know there’s a tremendous amount of pressure for the market to either go down by a large percentage or officially reverse to an uptrend. The scariest part is the trendline heading down from the all-time high.

We actually broke out from below it when the price was above $10,500 in early March. But, that was short lived and we came under. We did find support in the newly formed handle, but to sustain this trading channel we need price action in the $10,000 to $14,000 range to happen very soon.

Bitcoin trading channel

The above image is the Daily chart. Changing from Weekly to Daily gives us more perspective on where things are at and what has to happen in the near-term to keep with the trend.

As we can see, the price needs to stabilize above $10,000 again and fast. The upper trendline is near $14,000 which is a high target for a breakout right now. If the price finds support above $12,000 we could definitely see an attempt to retest the all-time highs ($19,000+ in December 2017), as that’s part of the C&H pattern we’re trying to visualize here.

Triangles

A triangle is a pattern but you should see it as more of a charting tactic. The idea is that the trendlines are shaping together to form a triangular shape. The trading channel gets more narrow as a triangle nears its completion. When a long-term triangle reaches its end point — a break upward creates a momentous price increase, while a break downward results in a large price drop.

Symmetrical Triangle (Neutral)

Bitcoin neutral symmetrical triangle

We have a symmetrical triangle on the Weekly chart that broke out but never received its confirmation candle. The rise to $11,700 took us above the upper trendline. The next candle didn’t break the bottom trendline — because we made a higher low. A symmetric triangle is not necessarily bearish or bullish, but when a breakout occurs it does give an indication.

However, this symmetric triangle was formed in such a way that it reads as bullish. Beyond technical indicator “definitions” we have contextual understanding. In this very circumstance, what we see is a switch from a descending (bearish) triangle to a symmetrical (neutral) triangle.

Descending Triangle (bearish)

Descending triangles have upper trend lines that keep coming down while the lower trend line stays the same. The concept here is that “the highs keep getting lower” and, therefore, “time is running out before this house of cards falls apart!”

See the example we just referenced…

Bitcoin bearish Descending Triangle

The bottom trend line we’ve drawn is based off of the body of the candle from the market’s $6,000 low. You can decide for yourself whether to use the wick bottom or body bottom. For this circumstance, we want to know what’s going on right now — if the current trend plays to fruition quickly, how do we visualize that happening? We assume the body of that candle is a support line — which seems to be the case, given the low of $8,342 on the next major red wick.

So we saw a green candle body go above the upper trend line. This was met with a red candle on the next week of trading but the breakout isn’t rejected yet. The market thought we reversed, but we cannot be certain without that confirmation candle on the Weekly chart. This candle closes today (March 11th) and the most bullish scenario is a close above the trendline. For this to happen, we need to see the price stay above $10,000 roughly.

Supposing the price deteriorates more, what can we predict next? We have that red wick from the $6,000 candle to use as a next measuring point. So, we would create a chart using that as the bottom trend line and we would likely see a retest of the $6,000 low very soon.

Bring together the different indicators.

We explained how an inverse cup and handle has formed. We’re in the handle phase right now. The descending triangle breakout happened but isn’t confirmed yet. A confirmation of a breakout from this triangle also falls in line with continuation within the handle’s upward channel.

Meanwhile, if this triangle doesn’t confirm the market will soon run out of time to prove its reversing and the handle formation will fall apart. If that does happen, the $6,000 low retest makes sense due to the downward momentum from the failed handle.

Ascending Triangle

It has been a while since we saw an ascending triangle on the Weekly chart. When it did take shape — the breakout was absolutely beautiful.

Bitcoin trading ascending triangle

This triangle is very interesting because the breakout happened right before the market went crazy. It played out perfectly at the time. Bitcoin day traders were seriously fearing a major crash but — after the $3,000 rebound — the lows kept getting higher.

The price wedged up and ultimately never came back down once $5,000 was passed. Why is this? Because the bullish ascending triangle saw a legitimate breakout — it meant a lot from a technical analysis perspective. The reality was that the fast-rising bottom trend line was being respected by the market.

Those that traded back then knew how poor sentiment was and didn’t expect a breach of $5,000 — even when it broke everyone thought it would only last a day or two. In hindsight, everything makes sense when placed on a chart (the glory of TA!)

Double Bottom (bullish) & Double Top (bearish)

The “double bottom” is a very basic trading pattern that exists when the market hits a low once and then finds support at it the next time it’s tested. The double bottom is confirmed after the retest fails and gets answered with a bounce. While a double bottom is indeed bullish — you must look at bigger patterns and indicators to determine the size and sustainability of the bounce.

Example of a double bottom:

double bottom trading example

The convincing bullish indication from a double bottom comes when the neckline is surpassed. As you can see in the pictured chart above, the price “fell off a cliff” and discovered the first bottom. It tested that cliff (the neckline) but came back down to the bottom again and bounced once it found support there. Trading can turn bullish if the market can get over the neckline and turn it into a support level.

Double bottoms look like the letter “W” on a chart. Double tops look like the letter “M”.

Example of a double top:

Double top trading example

The “double top” occurs when the market reaches a high, corrects, retests the high and fails to break through. The fallback will result in a test of the neckline. If broken, the pair will turn very bearish. Depending on the time chart you’re looking at, the downward trend could last hours, days, weeks or even months.

Head and Shoulders (bearish)

The head and shoulders pattern is a sign that a bull run is over. Upon completion, the market falls down and targets a 1:1 correction. What this means is that — when the baseline collapses — the price will cut back by as much as it rose before starting the pattern. For instance, if the pump began at $9,000 and peaked at $11,000 then we would set a $7,000 target if the market breaks out to the down side.

Bearish head and shoulders trading example

The image above shows a standard head and shoulders pattern. Sometimes the right shoulder peaks a bit lower but it doesn’t have to be even with the left shoulder. A higher right simplify symbolizes that the market ran a bit higher toward the previous top. You still see a double top here — and a failed double bottom attempt against a pre-existing support line — which is incredibly bearish.

Inverted Head and Shoulders (bullish)

An inverted head and shoulders is the same chart pattern but inverted. It’s visually a bit harder to spot, but holds the same concept and significance.

Bullish inverted head and shoulders trading example

This image mentions where you should enter long and run with a stop loss. With the inverted head and shoulders, you stand a better chance of profiting while assuming little risk. An entry point at an elevation near the head’s peak is perfectly safe.

Your stop loss won’t be far away.

The head level will only break on high volume so your stop is safe. If it does bottom out here that means there’s a “triple bottom” and this time we marked a higher low. The price will undoubtedly move upward and challenge the neckline where the left head first started. If that level is broken on volume the market will then shoot for a 1:1 ratio to the up side.

Remember to look for volume validation when a confirmation candle appears. If a support or resistance seems broken, the volume indicators will tell all.

Please Pay Attention to Chart Timeframes

Remember how we showed you a Bitcoin Weekly & Daily chart earlier in this guide? We wanted to explain how movements show more predictably over a longer timeframe. This fact can be very beneficial for you because it tells you the true support and resistance levels.

Price channels are the noise between bigger moves that happen at key support and resistance price-points. Your trades are safest when you enter a position right above a crucial support or right below a key resistance. They’re also pretty safe if you capture a position going long when a resistance first turns into a support, or a position going short when a support first turns into a resistance. Regardless, you need to know how to chart these long-term support and resistance levels.

We showed the Weekly chart to showcase a monumental price movement. The all-time high of $19,000+ dropped harshly to a $6,000 low. The rebound took shape and the “uptrend” was seen as returned once the weekly candle first broke the upper bollinger band with conviction.

Which Timeframe Should You Play When Day Trading?

HINT: We won’t recommend a single timeframe, but we’ll demonstrate a dynamic Bitcoin day trading strategy that works. As we expressed earlier — we’re going to show you how one would analyze the $6,000 low in February 2018 and the failed reversal. You’ll see how the re-crash was predictable and how you would have made major profits by calling it.

We recommend you scope out smart trades.

Don’t limit yourself to day trading Bitcoin because that’s only one asset. You won’t find highly profitable moves every single day.

However, many other altcoins with reasonable trade volume make sizable moves like Bitcoin does. You should be charting a handful of coins, tracking key price levels and making your moves when you see an opportunity.

One tactic to consider…

Look at the charts with shorter timeframes — mainly 5 and 15 minutes — figure out what kind of movement is happening at the moment. Is there an upward or downward channel playing out?

If things look predictable in the short-term chart, switch to the 1-hour chart next. The 15-minute chart is only telling you the price action for the past 30 hours or so. The 1-hour chart gives you more than five days worth of data.

We can pinpoint the precise moment when the price of BTC crashed from its supposed recovery by using this strategy.

Bitcoin crash 1 hour chart

This movement was pretty predictable.

When the price slipped from the blue line we had a “confirmation candle” indicating that the downward movement was about to get serious real fast.

See what happened here?

The candle with the white box is our confirmation that the price would continue to drop on this chart (1-hour timeframe). We could either enter a position during that candle or try to find a better opportunity to place the short sell. Sometimes you can get a higher sell price if you wait for the levels to retest. However, they were wavy before this and the likelihood of a short-term recovery was very low at this point.

We saw the price move to trail along the blue line (7-day moving average) after it made a bearish cross — where the yellow line (30-day moving average) went above. This signals that the market is going down quicker in the near-term than it’s going up in the mid-term.

A short sell at the bottom of the body of that confirmation candle would’ve been a safe move. Your entry would’ve been around the $11,200 mark. The next thing to figure out is when you should close your position and where to put your stop-loss. Let’s assume you use 20x leverage, which means a 5% uptick would zap your investment.

5% over $11,200 is a $11,760 price for you to lose the trade. Thus, you know your short will not liquidate in the midst of some more range trading. If the market is really moving down it would be necessary to find a new local top for your trade to become a loser. So, in this case, we let it ride and don’t worry about putting a stop-loss!

Call the “bottom” by looking at a larger time frame…

Bitcoin crash on a 4 hour chart

Now we’re looking at a 4-hour chart which gives us roughly three weeks worth of trade data. The story for Bitcoin’s price becomes even more grim in this moment. Since you’re not an experienced trader yet — we’ll explain what you’re seeing right now.

“The Bottom”

We recommended that you enter your position at $11,200 and decide on a bottom price to exit around. That mark was the line you see along the bottom of the last red candle on the chart. It’s not because of that candle. Truthfully, the previous ~$9,200 low recorded around February 25/26 was indicative of where the price would trend to once the 1-hour uptrend broke down.

That’s what we’re getting at here. Don’t trade solely based off of a single chart. Also, ignore 1-minute or 3-minute charts unless you’re trading 24/7 or using 33x or higher leverage.

We’ve now decided that we will enter at $11,200 and risk our whole investment in hopes that we exit around the $9,200 mark. If the full move plays in our favor that means we called an almost 18-percent price drop. If you invested $1,000 into the trade you would’ve made $3,600 in profits.

That prediction was a smart and obvious one. Now, what do we do since the market fulfilled expectations? We need to figure out how it will move in reflex to the new downtrend. We know the price recovered ever since $6,000 so there’s still lots of room for it to drop more. We could technically keep hold of the position we already have but your goal should be to increase your cash balance and locking in profits is essential to be a consistent winner.

“The Fake Recovery”

Okay, so the price bottomed at $9,025 in a panic. The hourly candle struggled to sell below $9,250 because the market had prior support on the 4-hour chart at that level. The fact that the 4-hour chart support line broke means the market will almost certainly attempt to drive the price even lower. The only way this move could be stopped is if buy volume came through and prevented a further drop, which would turn the $9,200 level into a new floor.

The market is incredibly bearish and a re-test is expected to succeed. We’re looking at longer time frame charts playing a role in the current trend now. The next meaningful chart to check is the 12-hour which is where the $6,000 low becomes visible. However, many traders skip right to the 1-day chart because when the 12-hour plays into the pattern the 1-day is almost always tested as well.

Bitcoin fake recovery chart example

That’s the Daily chart from the start of Bitcoin’s price recovery after the $6,000 low.

The confirmation candle came to life today. We can say for certain that the bollinger bands are now two strong resistance points. We can be very happy if we manage to enter a new short position around the $9,800 price mark.

However, time is running out…

The Weekly chart tells a much bigger story right now. We’re seeing a complete reversal to bearish on Bitcoin’s s-curve uptrend. Yes, we’re talking about a full change in market sentiment from early 2017 to now. As you can see in the Weekly chart below, the bollinger bands are about to make the ultimate bearish cross.

Bitcoin bear cross chart example

We’re seeing a symmetric triangle nearing its end on the Weekly chart. The conclusion of this triangle will send the price skyrocketing up or down. It’s happening during a bearish trend which is a good indicator that the price will drop hard soon.

The RSI levels below the volume candles make the story even clearer to read.

RSI of 70 or higher is “overbought” which happens when FOMO (fear of missing out) kicks in and everyone is buying and believing the price is trending up. We stayed in overbought territory right until 2018 came to an end. 50 is the neutral zone and 30 is the start of the “oversold” RSI levels; at $9,200 the price action is only reaching neutral — therefore, the market can handle a lot more downward momentum right now.

Re-entering the short sell for the next move down

If we’re re-entering a short position we want to do so with a target around the upper band on the Hourly chart. This level puts us at very little risk of getting liquidated as the upside is limited unless the market truly flips back to bullish. That level dropped fast, from $10,100 to $9,800 in six hours. The fact the market is showing a major push down on the Weekly (huge triangle test) means we might not see the upper band before the market sells off again.

We might decide to shoot for a lower band retest which would mean waiting for $9,600 to place a short sell. At $9,600 the price would need to recover to $10,080 to liquidate our position. This move is unlikely given the tremendous push down that’s going on in the moment. However, it’s much more possible than the $11,700+ recovery when we placed the $11,200 short sell.

That’s what you need to realize!

You cannot predict the trading waves within a range. Sometimes when the market feels the most doomed, the price will spike up 10% simply to wash out the short traders. Other times, when the market is cleared for a major move up, flash sell-offs might occur to wash out longers.

Do you really want to risk a great position for a little extra gain? The $11,200 call was a great one and it’s definitely worth holding onto if you played it in time. However, if there weren’t longer-term charts justifying a continued downtrend it would make complete sense to liquidate and wait for the next scalping opportunity. This one is a winner… Ride with it!

Bitcoin 1 hour chart

See what happened?

The price only recovered to $9,471 before it came tumbling down. The lower band did adjust down to this area by the time it hit that level. Therefore, the lower band price-point was theoretically a correct opportunity to re-enter a short.

The problem is that you might’ve called a retest of this line hours back when it was $9,600 and you only would’ve caught the move if you kept lowering your sell order price. Target your entries in live time based on bollinger band movements to maximize reward potential and minimize risk.

That local (short-term) top of $9,471 lead to an easy retest of the $9,025 low from earlier in the day. The result was a massive sell-off down to $8,342 which is almost 29% down from the $11,700 high before the drop. It would’ve paid generously to hold onto your position here — the price movement called from $11,200 to the $8,342 is more than 25% which is a $5,000 profit on a $1,000 short sale at 20x leverage.

Does the idea of holding your position sound intimidating? It’s all about calling the right time to wait it out a bit more. The $9,200 area support test was an expected battle on the Daily chart but the Weekly chart told a bigger story. This entire trade would’ve taken less than three days.

Where Bitcoin’s Price Might Move Next

We made incredible profits already based on the trade analysis put forward. The Weekly chart is in a decision spot where it could crash much further or have a violent rebound. The latter is less likely because it requires a return of volume to where it was in late 2017.

We’re also not seeing oversold levels at all yet.

With the price in the $8,000’s the RSI still hasn’t broken 50 yet which is the neutral level before the oversold territory at 30 begins. Remember, “oversold” also means “underbought” so when the RSI does reach 30 and below it’s common for buy volume to return and cause a price spike.

Bitcoin weekly chart

That’s what the Weekly chart looks like right now. The large red candle at the end is a week that’s still playing out (two days remaining). We believe there is a high chance of the market continuing the violent downtrend. For this prediction to be accurate, the most likely scenario is the body of this candle closing below the lower bollinger band.

A close below will signal a massive bearish cross for the following week. At that point, it will be very easy to get a confirmation candle (for the weekly interval) to play out. The magnitude of the drop cannot be determined yet as it depends on various unseen indicators. However, it’s easy to anticipate a support level test of $6,000 (the top support line on the chart above). The next major support, ignoring the $5,000 psychological level, would be $3,000 which was the bottom before the late 2017 pump started.

Fast forward a bit…

Bitcoin rebound in a 4 hour chart

That’s how action has played out since the drop (4-hour chart). We’re seeing a healthy rebound playing out because the market double bottomed and saw both a higher low and higher high.  

There’s a nice bull flag formation that started after a confirmation candle above the first bollinger band. The flagpole took us above both lines where we’re attempting to find support and hold the flag until the price breaks out. At this point a high-volume upward move would be massive. The neckline would break and $10,000 would turn into a technical support, not just a psychological one it was in the past. Bitcoin 3 day chart ascending triangle forming

Above, we also can see on the 3-day chart that an ascending triangle (bullish indicator) is taking shape. Many technicals are suggesting that the price will either go up quickly or tighten and soon play the $10,000 to $11,000 before a decisive move is made.

For day trading purposes, we need to be extra careful. These highly volatile moments are often lead by a sudden lack of volatility. The price could fluctuate within a small range many times and these “choppy waters” can be very unprofitable times. Our goal should be to continuously chart the price action and wait for a key indicator to signal for us to go long or short.

Remember, we showed you an inverse cup & handle Weekly chart pattern earlier. That pattern is the biggest forming indicator that exists up to the date of the chart above (which is the most recent one on this page). You’ll want to track at shorter time frames but revert back to the handle formation if this upside continues as that’s the breakout that will signal new all-time highs for Bitcoin.

Thanks for Reading … Good Luck Trading!

Further Reading At TotalCrypto.io
1) Check Out Our Day Trading Cryptocurrency Guide.

2) Looking For An Interesting Crypto To Trade? Find Out What QTUM Is All About.

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