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Crypto trading trends and channels
Crypto trading trends and channels also are very powerful chart pattern that widely accepted by all traders. They combined several forms of technical analysis to provide crypto traders with potential points for buying and selling, as well as how to control the risk. In this article, we will briefly show you how to identify Crypto Trading Trends and Channels in trading, and also include determining where and when to enter a trade of cryptocurrencies such as Bitcoin(BTC) and Ethereum (ETH), where to place stop-loss orders on crypto trading platform (crypto exchanges), and where to take profits from buying cryptocurrencies.
Crypto Trading Trends
As you'll notice when you look at a chart, market prices do not generally rise or fall sharply in a period of time, but rather in a series of zigzags. The price will rise to a peak or a high, then drop to a trough or low. Despite this, the market will usually move in one overall direction or trend, and it's the relative positioning of the peaks and troughs that define this trend. There are three types of market trend:
- For a market to be in an Uptrend, each successive peak must be higher than the last, and each trough must also be higher than the preceding one. We can also call it bullish trend, the trend line is plotted below the price action, while the trend channel line is positioned above the highs of the price movement.
- For a market to be in a Downtrend, there must be a series of successively lower peaks and lower troughs. It also named bearish trend, the trend line is plotted above, while the trend channel line is below the price action.
- In a Sideways trend there's no clear pattern to the peaks and troughs, with the price generally run back and forth in a fairly narrow range between support and resistance levels.
In general, trend lines are used as entry signals because they play the role of a Support level in a bullish trend and a Resistance level in a bearish trend.
An entry signal is given when the price tests the trend line without violating it. When this happens, the trade is entered in the direction of the trend with a stop loss placed just below the trend line. The opposite trend line can be used as a price target at which to take profit. For example, in an ascending channel, traders may use the test of the LOWER trend line as an entry for a trade with the trend. A long position is entered with a stop loss placed just below the lower trend line. The upper trend line can used as the profit target. Trend channel lines most often generate countertrend entry signals, since they act as a resistance in uptrends and support in downtrends. For example, in an ascending channel, aggressive traders may use the test of the UPPER trend line as an entry for a trade against the trend (countertrend). A short position is entered with a stop loss placed just above the upper trend line. The lower trend line can used as the profit target. Trends are fairly easy to plot on a chart - all you need to do is connect two major peaks or two major troughs with a line. If you've drawn them correctly, trend lines will often act similarly to support and resistance levels. However, you should note that:
- It only takes two peaks or troughs to draw a trend line, but it takes three to confirm the trend
- Just like support and resistance levels, the more times the trend line is tested, the stronger it is said to be
- Steeper trend lines tend to be unreliable and break easily
Crypto Trading Channels
Parallel lines form trend channels, which just as the trend itself can be ascending, descending, or sideways (ranging). If we take this trend line theory one step further and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a channel. Trend channels are just another tool in technical analysis which can be used to determine good places to buy or sell. The trading channel technique often works best on assets with a medium amount of volatility, bigger channels are typically associated with more volatility, meaning larger potential profits.
Trend channels with a negative slope (down) are considered bearish and those with a positive slope (up) are considered bullish. To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent peak. This should be done at the same time you create the trend line. Also. To create a down (descending) channel, simply draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you create the trend line. The upper trend line marks resistance and the lower trend line marks support. So both the tops and bottoms of channels represent potential areas of support or resistance. We summarized the type and characteristics of up, down and horizontal channel's candlestick position in above picture too. Spotify those characteristics will help you identify the different types of the channel easier. Volume can also aid in trading channels. Volume is often lower in channels, especially near the middle of the channel. Breakouts are often associated with high volume. If the volume isn't rising on a breakout, there is a greater likelihood the channel will continue. If use Spot trading market as a simple example, when prices hit the LOWER trend line, this may be used as a buying area and when prices hit the UPPER trend line, this may be used as a selling area.
KEY TAKEAWAY
- An uptrend in crypto trading trends and channels is characterized by a series of higher peaks and higher troughs and a downtrend is formed during a series of lower peaks and lower troughs
- The more the market price reaches a trend line, the stronger it is seen to be. Also, the longer the channel has lasted will help determine the trend's underlying strength.
- Channels are an parallel extension of trend lines and can be used to identify buying and selling areas
- Traders also use channels to help identify potential entry and exit points, as well as set price targets and stop-loss points
- Other technical indicators, such as volume, can enhance the signals generated from trading channels.