A Skeptic's Guide To Technical Analysis - Primary Trend and Related Strategies
Experienced traders recommend trading in the direction of the primary trend. Is trend our friend? After observing the market for a long time, I am convinced that the answer is yes.
Uptrend, Downtrend, and Range Market
The upward trend usually appears as a gradual movement consisting of higher highs and higher lows. When the trend is up, price pullbacks are seen as buying opportunities.
In the range markets, the price is in a particular band range. The lower end of the range is seen as a buying opportunity and the upper limit as a selling opportunity.
The downward trend is a gradual movement consisting of lower highs and lower lows. During the downtrend, price increases are seen as selling opportunities.
It's a pretty clear roadmap, but determining the direction of the trend can be difficult in some cases. It is also necessary to predict how long the trend will continue.
Identifying The Primary Trend
Price movements are essentially fractal and chaotic. Market participants attribute a trend to it.
Below is Hive's price chart for the last year. I wonder what the primary trend of Hive is? Do we see higher highs, higher lows, or lower highs and lower lows on the chart?
Looking at the big picture, we see that the Hive price has declined since last December. Considering that crypto is in a bear market, we must accept that the primary trend is downward.
On the other hand, we can see the upward trend that started in mid-June. What assumption should we accept? Fortunately, we have concrete criteria to apply in such cases. For example, the 200-day moving average confirms that the Hive price is in a downtrend.
In such cases, sticking to a single indicator can be misleading. We can get a more precise result by checking the RSI value on the weekly chart.
The RSI value below zero also indicates that the downtrend continues. If we are going to trade by sticking to the book, we need to see the rise in the Hive price as a selling opportunity right now.
Limitations of Trend Trading
Our biggest problem with trends is that they don't last forever. Moreover, we do not know how long they will last. Significant price movements occur during trend changes, and those who adhere to the primary trend cannot benefit from these price changes. For example, the Hive price dropped to 33 cents on June 15, 2022. Those who buy Hive at that price have gained 70% returns as of today.
For the uptrend to start, the bottom formation must be completed first. Formations such as the triple bottom, head&shoulders, which occur over an extensive period accompanied by high volume, may indicate that the bottom formation has been completed.
Exceeding the 200-day average, RSI value exceeding zero on the weekly chart, and higher highs and lower highs will be signs of a medium-term uptrend.
Conclusion
Investors who take the train in the early stages of uptrends can travel long distances without much difficulty. In the last period of the uptrend, those who take the train can stay on the road despite their high ticket price.
I see range markets as periods when professional traders can trade. It may be possible to spend these periods profitably by earning DEFI or staking returns.
During downtrends, staying away from the market may be a more appropriate choice. Because in the crypto market, prices can drop several times. When prices fall to extreme levels compared to historical average prices, it would be wise to buy regardless of the climate of fear. Likewise, cryptocurrencies such as Bitcoin, Ethereum, and Hive, which are trusted for their long-term potential, can be purchased anytime during the bear season.
Thank you for reading.
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