It is not difficult to understand, but not easy to implement. When it comes to investing in the secondary market, everyone knows that greed and chasing highs and lows are not advisable. However, how many people can truly control their actions and align their knowledge with their actions? In the Tao Te Ching, Laozi mentions the concepts of Dao, Fa, and Shu. Dao refers to rules and natural laws, core principles. Fa refers to methods and legal principles, systems. Shu refers to behavior and operational methods. The combination of Dao, Fa, and Shu is regarded as an important principle and guideline for guiding people’s lives and social development.
For the secondary market, we can also divide investments into Dao, Fa, and Shu, and all three are indispensable.
Dao represents investment concepts and beliefs, including investment direction, goals, and values. It includes analysis of long-term market trends, macroeconomic conditions, and fundamentals.
Fa represents investment rules and regulations, including investment strategies, risk management, and asset allocation.
Shu represents technical analysis, quantitative analysis, and trading psychology.
In this report, we will focus on the “Shu” aspect of trading. The purpose is to share the application of technical indicators and technical analysis in practical trading. For most people, it is not necessary to learn many obscure technical indicators because technical indicators are lagging and cannot directly generate profits. This report will share commonly used technical indicator methods to let more people understand the significance of technical analysis.
Disclaimer: The cryptocurrencies and indicators mentioned in this report do not constitute investment advice and are for learning purposes only. The investment advice and indicator usage mentioned are not applicable to all cryptocurrencies and products. Blockchain carries high risks, and you may lose all of your capital. Please conduct your own research.
The article mainly includes:
1. Explanation and application of MA and MACD indicators
2. Explanation and application of Boll and RSI indicators
3. Variation of flag consolidation
4. Conclusion
1. Explanation and application of MA indicator
The MA indicator, also known as Moving Average, calculates the average price of a given number of periods. For example, MA5 represents the average price of five candlestick charts, including the current one, regardless of whether it is on a minute, hour, or day level. The smaller the MA number, the more sensitive it is to fluctuations, focusing on short-term volatility. Conversely, the larger the MA number, the slower the fluctuations, focusing on long-term volatility.
The MA number can be set based on user preferences. Here, I will share two sets of MA trading methods that I commonly use: Vegas channel and squeeze channel.
Vegas channel:
The Vegas channel simplifies the use of the 144 and 169 moving averages to determine medium- to long-term trends. This method is not suitable for periods below 15 minutes and is recommended for use in periods of 1 hour or longer.
Why use these two moving averages? Upon careful observation, we can see that 144 and 169 are respectively the squares of 12 and 13, which incorporates Gann’s square theory and the Fibonacci sequence. The number 144 comes from Gann’s square theory, while the number 169 is the square of the Fibonacci sequence number 13. When combined, they can be applied effectively in practical trading.
Example explanation:
Let’s take the 4-hour trend of OP as an example. When the 144-day moving average crosses above the 169-day moving average, it forms a golden cross (representing the 144 moving average crossing above the 169 moving average), indicating a bullish medium- to long-term trend and a potential entry opportunity. When the price reaches the top and the 144 moving average crosses below the 169 moving average, it forms a death cross (representing the 144 moving average crossing below the 169 moving average), indicating a bearish medium- to long-term trend and a potential exit opportunity.
Some might ask, “You’re being too absolute in your statements. How do you explain the back and forth golden and death crosses before a consolidation? Aren’t you just gambling?” My suggestion here is that since the 144 and 169 moving averages cannot determine short-term trends and have strong lagging characteristics, you can add the 7 and 14-day moving averages to assist in judging short-term trends. By zooming in on OP’s trend, we can use the larger timeframe MA moving averages to judge medium- to long-term market changes and use the golden cross of the smaller timeframe MA moving averages for secondary confirmation, achieving the highest level of certainty.
Vegas channel is used to judge medium- to long-term trends. Due to its lagging nature, it still needs to be combined with short-term moving averages for auxiliary verification. Strong trends require the 144 and 169 moving averages to rise. If the price consolidates near the 144 and 169 moving averages, it indicates weak short-term trends and is not suitable for entry. Additionally, the 144 and 169 moving averages act as support and resistance, making them suitable for operations such as short-term oversold rebounds.
Squeeze channel:
The squeeze channel is mainly derived from the squeeze theorem in mathematical calculus. The simplified explanation is that if a function is “squeezed” between two other functions near a certain point, and these two functions have the same limit, then the limit of that function will also tend to the same value.
In secondary market trading, we can apply a similar squeeze theorem model. We can simplify it to two moving averages, 111 and 350 moving averages. Since the 350 moving average has a longer period, it is recommended for short-term trading.
Why these two moving averages? When we divide the 350 and 111 moving averages, the resulting number is closest to pi, approximately 3.15. In other words, if we divide 350 by 3.14, the closest number we get is 111.
Example explanation:
Let’s take the 1-hour trend of TRB as an example. When the blue line (350) moving average is above and the yellow line (111) moving average is below, forming a triangular or similar shape, it represents a successful “squeeze.” After the squeeze, the subsequent trend is expected to be bullish. However, it is important to note that for a valid squeeze formation, the 111 moving average must cross the 350 moving average. If only one side crosses, it is not valid.
This channel is suitable for 1-hour and 4-hour timeframes and has average accuracy. However, once successful, the subsequent trend will be a large-scale market move. Therefore, when a squeeze formation occurs, it should be given extra attention and observation. Other technical indicators can be used for auxiliary judgment.
MACD (Moving Average Convergence and Divergence):
MACD is the most commonly used technical indicator in trading. Its core is to analyze the changes in price momentum by comparing moving averages of different periods, providing buy and sell signals. MACD mainly consists of the zero line, MACD line, and signal line, and the main focus is on the changes in these three.
Three changes of MACD:
1. Crossings between the MACD line and the signal line:
Buy signal: When the MACD line (blue) crosses above the signal line (yellow), it indicates a positive shift in market momentum, and a long position can be considered.
Sell signal: When the MACD line (blue) crosses below the signal line (yellow), it indicates a negative shift in market momentum, and a sell position can be considered.
2. Relationship between the MACD line and the zero line:
Above zero line: When the MACD line is above the zero line, it indicates that the short-term moving average is higher than the long-term moving average, and the market is in an uptrend.
Below zero line: When the MACD line is below the zero line, it indicates that the short-term moving average is lower than the long-term moving average, and the market is in a downtrend.
3. Changes in the histogram:
Change from negative to positive: When the histogram changes from negative to positive, it indicates that the MACD line is above the signal line and the momentum is strengthening, which is a buy signal.
Change from positive to negative: When the histogram changes from positive to negative, it indicates that the MACD line is below the signal line and the momentum is weakening, which is a sell signal.
Example explanation:
Let’s take the 4-hour trend of ETH as an example. When the MACD line crosses the signal line, it indicates a bullish trend. When the signal line crosses the MACD line, it indicates a bearish trend. MACD is applicable to all timeframes, whether long-term or short-term, whether it is a 1-minute or weekly timeframe, it still applies.
Advanced usage of MACD and MA:
Simply knowing these basic uses of MACD and MA is far from enough. After all, these technical indicators can be looked up in public information. Many institutional investors and market manipulators intentionally create “false trends” to make you think that if you don’t buy now, you’ll miss out. In reality, it’s just a trick to deceive you into getting on board.
How to prevent and identify these “false trends”?
False trends are mainly created through manipulation of MACD and MA indicators. To prevent and identify them, it is important to consider additional factors such as volume, price patterns, and other technical indicators. It is also crucial to conduct thorough research and analysis before making any investment decisions.
(Note: The translation may vary slightly depending on the context and specific terminology used in the target language.)ACD Golden Cross guides beginners to enter the market, taking the 15-minute trend of BB as an example. When the 15-minute trend breaks through a new high and quickly falls, MACD enters a Death Cross, indicating the start of a pullback. However, during the pullback, the trend is quickly recovering and even approaching the previous high, but at this time MACD has just started a Golden Cross. We can understand this trend as “having the will but lacking the strength”, which means that the price has rebounded to the previous high, but MACD has just formed a Golden Cross. More than 80% of such trends will have the same result as shown in the chart, strong at first but quickly weakens.
Next, let’s take the 1-hour trend of ETH as an example. MACD forms a Golden Cross and the green histogram rises significantly, indicating that the price follows the upward trend. This kind of rise is a high-quality increase, which means that it is suitable for entering the market. Then, the price enters a sideways adjustment phase and MACD turns into a Death Cross. After the adjustment, MACD forms a Golden Cross, but it is observed that the increase and trend do not continue as in the previous Golden Cross, and the MACD histogram is not continuously strengthening. This “holding one’s breath” state is very dangerous. Although MACD forms a Golden Cross, the strength is not strong, and the longer this state lasts, the more dangerous it becomes. When the price breaks through a new high but MACD does not, we call it a “bearish divergence”, which is a strong sell signal. Similarly, when the price breaks through a new low but MACD does not, we call it a “bullish divergence”, which is a buy signal.
Second, BOLL and RSI indicator explanations and applications:
BOLL (Bollinger Bands) is a very simple and practical technical analysis indicator designed by John Bollinger, a stock analyst, based on the principle of standard deviation in statistics. Personally, I think it is very useful in secondary trading in blockchain. BOLL consists of three lines: the upper band, middle band, and lower band. The upper, middle, and lower bands of the Bollinger Bands represent resistance and support levels. When the price approaches the upper band, it may experience a pullback due to resistance, and when it approaches the lower band, it may rebound due to support. When the stock price rises above the upper band of the Bollinger Bands, it represents an overbought condition and the possibility of a pullback. Conversely, when the stock price falls below the lower band, it represents an oversold condition and a weak market. When the stock price falls from the upper band to the middle band, the middle band acts as support. If it falls below the middle band, it becomes a resistance level. When the stock price rises from the lower band to the middle band, it faces resistance. Breaking through the middle band and stabilizing represents a change from resistance to support.
Here are 10 important golden rules for Bollinger Bands:
1. Beware of a pullback when the price breaks out of the upper band
2. Beware of a rebound when the price falls out of the lower band
3. Strong trends are always above the middle band
4. Weak trends are always below the middle band
5. Narrowing bands indicate a potential breakout
6. The wider the bands, the stronger the trend
7. The middle band indicates the trend direction
8. Sudden convergence of the bands indicates a reversal
9. Sudden expansion of the bands indicates consolidation
10. The longer the bands narrow, the smaller the subsequent changes in the market will be
For example, let’s take the 1-hour trend of BTC as an example. BOLL is mainly composed of three lines: the upper band, middle band, and lower band. When the price exceeds the upper band, it represents overbought conditions and a high probability of a pullback. When the price falls below the lower band, it represents oversold conditions and a high probability of a rebound.
Next, let’s take the 1-hour trend of TRB as an example. When the Bollinger Bands narrow, it indicates that there will be extreme market conditions. However, Bollinger Bands alone cannot accurately determine the specific direction and need to be assisted by other indicators. The longer the narrowing time and the shorter the Bollinger Bands, the more intense the future market changes will be. In a strong uptrend, Bollinger Bands will gradually rise along the middle band, and in an extremely strong uptrend, Bollinger Bands will continue to rise above the upper band. Conversely, in a weak market, Bollinger Bands will gradually fall along the middle band, and at this time, the middle band will change from a support level to a resistance level. In an extremely weak market, Bollinger Bands will continue to fall below the lower band.
RSI (Relative Strength Index) is a technical indicator that calculates the strength of market movements based on the magnitude of price changes and predicts the continuation or reversal of trends. The RSI value fluctuates between 0 and 100, indicating that prices will not exceed this range. Simplified understanding of RSI is that when RSI reaches 70, it represents an overbought market and there is a higher risk of a pullback, while when RSI falls below 30, it represents an oversold market and there is a possibility of an upward movement.
For example, let’s take the 1-hour trend of BTC as an example. When RSI falls below 30, it represents a sideways and pullback market, but this kind of pullback does not guarantee market entry. It can only represent a weak market and cannot be used as a direct buying signal. Similarly, when RSI breaks through 70, it represents an overbought market and there may be a risk of a pullback. However, this still cannot be used as a buying or selling signal, only as an auxiliary judgment. Note that in extreme market conditions, RSI can reach 99 or 1, so it should not be used as the main judgment basis.
Next, let’s take the 4-hour trend of EDU as an example. After RSI breaks through 70, it continues to rise, and RSI eventually reaches 99. Therefore, we cannot rely on the method of buying at 30 and selling at 70. We need to judge the nature of the stock/coin, whether it is a small-cap, MEME coin, or highly controlled coin. Compared to blue-chip coins, the RSI judgment for other small coins may need to be adjusted to the range of 90 and 10 instead of 30 and 70, which needs to be judged independently.
Lastly, triangular consolidation, also known as flag consolidation, is not an indicator judgment but a trend change based on candlestick patterns. We can summarize it into 16 common basic variations. If we see similar trends, it is a good opportunity to buy, and the success rate is generally high. However, there are also times when it fails, so it is recommended to buy at the low point of the triangle and when it breaks through the triangle area, it becomes a support level, and it is possible to enter during subsequent declines near the support level.
For example, let’s take the 15-minute trend of APT as an example. Its trend perfectly replicates the third and tenth patterns in the chart. However, it is important to note that this is just a successful case. Many institutions and market manipulators intentionally create similar patterns to deceive people into entering the market, so we need to be cautious and consider implementing stop-loss strategies in a timely manner.
Next, let’s take the 1-hour trend of TRB as an example. We can observe that TRB has used the trend of a three-week triangular consolidation, achieving a three-fold increase in one week. So when we see similar trends in the market, we can draw them ourselves for verification.
In conclusion, in trading, we need to have a combination of strategy, method, and technique. This report focuses only on the technique part of the trading process. It is not enough to just learn and master the use of technical indicators. There are many pitfalls in the market, and the trend, rally, and decline methods will undergo major updates every three months or so. Therefore, we need to constantly observe and summarize the subtle changes in the market.
People are alive, indicators are not. The existence of technical indicators is to assist us in making trading judgments after sufficient understanding and risk control. They cannot be used directly for profit because all technical indicators lag behind and cannot be 100% accurate. Only when we have sufficient understanding and risk control can we use them as auxiliary tools for investment. Otherwise, it is just gambling.
Also, all technical indicators are not as simple as described in the report. Each indicator has different variations and methodologies. If studied carefully, each indicator can be studied for several years. Therefore, the article does not mention all variations and methodologies. Additionally, everyone has different trading styles, so the use of indicators may vary and need to be adjusted according to one’s own trading style.