Welcome to the next part of the series, which will be about drawing trendlines correctly, and identifying some basic patterns in the market.

Before going into the details, we should first understand:

What a "trend" actually is
Just like the usual horizontal supports and resistances which I have shown in the previous article, there may exist diagonal supports/resistances as well. It is not something that is complicated, so read on till the end! :)

Disclaimer: I'm not a certified financial advisor, and even though I've been trading for quite a few years, I urge people reading this, and my other posts to #dyor (Do your own research) before taking any decisions! There is no guarantee whatsoever that you will become a profitable trader. Of course I'm going to help you out if you have some queries/doubts, so feel free to let me know in the comments, or on Twitter :)

If you remember the supply and demand principle, (Please refer the previous article), we have assumed the supply and demand to be fixed. So that technically works for horizontal supports and resistances, but when it comes to more complex market analysis, the supply and demand curves will keep on moving over time.

The lines which I drew in the supply/demand principle are not actually straight. They are a bit curved in nature.

So, let us try to identify what a trend is.

Assume that Bitcoin is trading at $10000. Now assume that the price makes a low of 9800 on the next day, pumps back up to 10200, again drops to around $10000, and pumps till 10400, drops to around 10200 and goes to 10600,

So if you observe deeply, you will notice that the price keeps on moving higher and higher, It bounces higher and higher. This is called an uptrend.

Similarly, in a downtrend, the price will keep on moving down, and it will continue to keep on doing so over time, in a repeated fashion.

There also exists another option, where the prices are rangebound, which means that there is no clear trend. This is one of the most critical types (will discuss later) and it is also known as a sideways market (or sometimes some people jokingly call it the kangaroo market)

Time for some illustrations! :)

If you observe, you can imagine a market in an uptrend and downtrend. Easy right?

Now the sideways market will not have a clear higher highs/higher lows, or lower highs/lower lows pattern.

You will see that a sideways market often signals indecision and this is where many traders get chopped out, and lose a lot of money (Yes it happened with me as well). Volume diminishes in a sideways market, which means liquidity is being eaten up on either side, and both bulls and bears get somewhat REKT if they don't manage their risks properly.

Let us now try to identify how to draw trendlines correctly:

From the textbook definition, A trend line is a straight line that connects two or more price points which can be extended into the future to act as a line of support or resistance.

First identify the swing highs and swing lows on a chart, (points where reversals take place, which signifies that there is either supply, or demand in that zone)
If it forms a higher low, and breaks through the resistance, there is a high probability that it will go in an uptrend. A subsequent Higher high (which forms after the horizontal resistance is breached will confirm the uptrend bias.
If it forms a lower low, and breaks support, there is a high chance it will go in a downtrend.

Connect the swing lows, which will form the support of the uptrend or downtrend. Connect the swing highs, which will form the resistance of the uptrend or downtrend.

Trendline (during an uptrend or a downtrend) is formed when a diagonal line can be drawn between a minimum of two or more price swing points (also known as pivot points)

Let's have a more detailed illustration:

Make sure that there are at least two major swing high/ swing low as pivot points while drawing a trendline.

I have drawn the charts just arbitrarily and they may not be exactly how markets move. All the charts drawn are for reference only.

I'll pull up one of the live trades I took recently, which I shared on twitter a lot of times. (lol)

In this case, I will take the example of YFI token (YEarn Finance)

And here is how the trade evolved over time:

https://twitter.com/beehivetrader/status/1310977272879308801?s=20

Here's a link to my tradingview idea:

https://www.tradingview.com/chart/YFIUSD/6e8ABU7c-Laddering-my-shorts-on-YFI-Bearish-retest/ (click on the play button to see the next course of price action.

Please have a look at the past threads as well and see if you can identify any trends.

Alright, now the thing which may come to your mind is, how to spot those trends.

If you observe closely, the last time I took short was at the bearish retest of the diagonal trendline, which subsequently formed the lower high and confirmed the trend change and strengthened the bearish bias.

Swing highs and lows are identified when you see a sharp reversal in the price. For easily spotting them, I have marked them on the chart.

During the entire course of its uptrend the price never reached below the previous swing low and always went above the swing high (till $43k). Now the moment price started crashing down till $20k, there was a clear weakening of the trend.

On further checking, the moment it broke below 28k, it confirmed the break of the uptrend (Break of the support, marked on chart) So I actually added to my shorts (Previously I shorted around $40k, but that is a different story). Now I observed that the price reached almost $20k, but showed some signs of reversal.

This is when I decided to keep eyes on the bearish retest, and short again on the retest, which I shared on tradingview. At this time, my average short entry dropped to around $35k, and I basically doubled down on my shorts as I found that to be a good opportunity.

Once price started showing signs of bearish reversal, I let the profits run on it's own.

So on looking at the overall trade execution, it may look simple, but in reality, you have to keep eyes and control your emotions to be able to take big swing trades, even if they are based on simple supports and resistances.

Now at this point, you will observe that a large number of my trades are trend following trades, and I try to catch a trend early and ride it. The rate of success will be usually low, but once you catch one trend with proper position sizing and risk, you are for sure riding to the moon :)

This is where macro trendlines, and macro trends come into the perspective.

Usually on the traditional market, a trend evolves over a period of a few months, but crypto is 10x faster, so the trend evolves over a much shorter time.

If you are following this trade at this time, the moment it goes below the last swing low, it will confirm the bearish bias, and price will be reaching even lower.

Now let me pull up a sideways market.

If you notice, over a period of time there is actually no clear trend. Although it did form a lower high, and dropped, the overall trend was still not very strong. Which is why it is a sideways market, althought there is a lower low on smaller timeframe, which makes the chart look a little bit bearish. Now if the market makes a lower low, It should technically change the trend to bearish, but as of now, considering a lot of factors, I will personally not be keen on holding a BTC short at this point :)

Now that you have learnt and saw what are trendlines, and what is an uptrend and a downtrend, let's form some assumptions:

1) In an uptrend:

Supports tend to hold, resistances tend to break above. Hence, probability of resistances breaking, and turning into support is more.

2) In a downtrend:

Resistances tend to hold, supports tend to break down. Hence, probability of supports breaking, and turning into resistance is more.

Now please keep the above thing in mind, I'm pretty sure this simple, yet powerful thing will be of immense help to you if you trade based on trends

At this point, if you are still not clear with how to form diagonal trendlines, and what are higher highs and what are higher lows, lower highs, lower lows, I'll share one link to an article (not by me) which explains it very well.

Have a look at it here: http://www.realfibonaccitrading.com/2013/04/28/higher-high-higher-low-lower-low-lower-high/

In case of no trend, or sideways trend, you must keep the following things in mind:

Both Supports and Resistances may or may not hold, there is no absolute necessity that they will hold or will not hold.
This is the area where we all (including all the pro traders) get indecisive and can't really figure out what the price action should be.

(Of course, it all depends on timeframe. If the overall macro trend is indecisive, or sideways, and you spot a small lower timeframe trend, you can of course take the trade. But remember that the lower timeframe trades tend to be a bit more risky especially if you are playing with very high leverage. It requires some practice in the market. So if you are keen on low timeframe plays, or the thing called scalping, which may look easier on paper, I'd recommend you to try out paper trading first. (As per my knowledge, Deribit, Bitmex, and Delta exchange provide their testnets as well, which basically means you can play with virtual money, without spending your real money, so go ahead and try them out first)

In other words, there can be trends within trends.

Here's an example:

Imagine the following market (Check the below illustration)

Similarly, we can see both micro downtrends and uptrends, within a macro (larger timeframe) uptrend, which can exist on both bull and bear markets.

One small piece of advice: If you copy someone else's trades, it's always better to ask which timeframe the trader is looking at, and then you can check the charts on your own to see what you think, before taking the trade. I personally do like to check ideas of other traders out, but I usually take my own decisions, and try not to deviate from it (Trying to be less emotional on my positions and all)

Usually, if the timeframe is higher, (let's say a trader is looking at 4h) the probability of the trend will be much higher.

Lower timeframes will have a lot of noise, and hence more risk, and for that you need to practice before you start scalping.

High and low timeframes are somewhat relative, so if you see someone mentioning 5 minute timeframe, (low timeframe, where each candestick is of period 5 minutes,) the 1 hour timeframe (where each candlestick represents trading activity in one hour) will be higher timeframe.

Similarly, for someone looking at the 1 hour timeframe, the 4 hour, or the 1 day chart may be higher timeframe.

There is no magic timeframe, and same strategies can be applied to multiple timeframes.

If you choose a certain timeframe, I'd personally recommend you to stick with it unless you get stopped out, or unless you take profit and exit the trade.

If you read till here, thanks for having patience, and if you are new in this market, I hope you learnt something new today :)

Stay tuned for the next article where I'll be covering about some of the patterns which you can draw by using trendlines.

If you liked the article, please this with your friends and circles, and also spare an upvote for me, so that I get motivated to keep sharing market insights and analysis :)

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Trendlines and a brief introduction to patterns (Series 7: Bee_A_Trader)