Ethereum Trading Strategy - Still More Downside to Come
Let's talk a little bit about trading strategy here.
1. We are clearly in a bear market. Lower highs, Lower lows, clear down channel. Over 50% price loss in the last month or so. The trend is down and you trade with the trend until the trend changes. That means quicker to get out when buying bounces, bias to the short side, and when it comes to risk - reward you overweight the probability of the downside outcome.
2. Technical analysis is not predictive, it's reactive. What that means is I don't use patterns, trends, support resistance & indicators to try to guess what is going to happen next. Use patterns, trends, support resistance, indicators to react quickly when 1 of the potential outcomes is confirmed. When you get a triangle it's usually a continuation pattern, so while you may bias your thinking in the direction of continuation understand it is really a *breakout* pattern, meaning it will go one way or the other. There is no need to guess which way it is going to go, you must simply react quickly when it does go.
Let's look at this in the context of the ETH chart. Starting from longer term and getting shorter term.
Longer Term (Days to Weeks)
Everyone has this channel drawn. You can use it to trade the eventual bullish breakout, because everyone else is going to trade the same breakout. May want to front run it if you have a good risk - reward set-up where you get a few bullish indicators (MACD, RSI) and can get in at an attractive price with a stop at the most recent low. I prefer to wait for trend confirmation.
From the chart you can see daily Stoch RSI is not very predictive. Not enough data for weekly Stoch RSI or MACD to be useful, so you make due with what you have.
Personally I'm looking for two things:
1. Daily Stoch RSI to cross bullish
2. AT THE SAME TIME as the daily MACD looks like it is going to cross.
Thoughts: It could still be a while based on MACD distance. I remain biased to the short side until the trend changes.
Shorter Term (Hours to Days)
Though I've seen everyone with the bold red down channel, I've seen fewer people with the descending wedge pattern in the thinner red. You can say that means the pattern won't play out, because it lacks crowd psychology, but it's still something to think about. From this pattern I see 3 scenarios:
1. Most likely - Breakout short to $160/ETH - $120/ETH - Being bias to the downside, I expect us to break the bottom of the wedge and head down to the daily support zone between $160/ETH and $120/ETH, drawn on the chart. Yes, that is a huge range, but You'll see a lot of people try to go short after breaking the $160/ETH close and get rekt by the wick. I try to give myself a margin of safety in my trades by looking at both the body and wick of the candles, typically picking the more generous range.
The 4 Hour MACD is bearish and the 4 Hour Stoch RSI is oversold but historically (using this bear market as data) we can continue to see price declines in ETH despite oversold 4 Hour Stoch RSI. I will be tracking Daily Stoch RSI, 4 Hour Stoch RSI as well as 2 and 3 Hour Stoch RSI to look for evidence of when a breakout may occur in either direction, looking for Stoch RSI to match MACD for additional confidence.
2. Likely - Neutral - Slow short to $160/ETH before hitting support - We could just continue bouncing up and down in the wedge pattern and slowly drifting to the tip at $160/ETH. At that point you'll want to rely on other indicators like MACD and RSI to tell you which way the breakout will occur.
3. Unlikely - Long bullish wedge breakout to channel down resistance. Possible indicator would be Daily RSI, 4 Hour Stoch RSI and 4 Hour MACD all bullish. Would be looking to short again if it broke out up to the thicker red channel unless we were looking at a Bullish Daily MACD Cross.
1. We are clearly in a bear market. Lower highs, Lower lows, clear down channel. Over 50% price loss in the last month or so. The trend is down and you trade with the trend until the trend changes. That means quicker to get out when buying bounces, bias to the short side, and when it comes to risk - reward you overweight the probability of the downside outcome.
2. Technical analysis is not predictive, it's reactive. What that means is I don't use patterns, trends, support resistance & indicators to try to guess what is going to happen next. Use patterns, trends, support resistance, indicators to react quickly when 1 of the potential outcomes is confirmed. When you get a triangle it's usually a continuation pattern, so while you may bias your thinking in the direction of continuation understand it is really a *breakout* pattern, meaning it will go one way or the other. There is no need to guess which way it is going to go, you must simply react quickly when it does go.
Let's look at this in the context of the ETH chart. Starting from longer term and getting shorter term.
Longer Term (Days to Weeks)
Everyone has this channel drawn. You can use it to trade the eventual bullish breakout, because everyone else is going to trade the same breakout. May want to front run it if you have a good risk - reward set-up where you get a few bullish indicators (MACD, RSI) and can get in at an attractive price with a stop at the most recent low. I prefer to wait for trend confirmation.
From the chart you can see daily Stoch RSI is not very predictive. Not enough data for weekly Stoch RSI or MACD to be useful, so you make due with what you have.
Personally I'm looking for two things:
1. Daily Stoch RSI to cross bullish
2. AT THE SAME TIME as the daily MACD looks like it is going to cross.
Thoughts: It could still be a while based on MACD distance. I remain biased to the short side until the trend changes.
Shorter Term (Hours to Days)
Though I've seen everyone with the bold red down channel, I've seen fewer people with the descending wedge pattern in the thinner red. You can say that means the pattern won't play out, because it lacks crowd psychology, but it's still something to think about. From this pattern I see 3 scenarios:
1. Most likely - Breakout short to $160/ETH - $120/ETH - Being bias to the downside, I expect us to break the bottom of the wedge and head down to the daily support zone between $160/ETH and $120/ETH, drawn on the chart. Yes, that is a huge range, but You'll see a lot of people try to go short after breaking the $160/ETH close and get rekt by the wick. I try to give myself a margin of safety in my trades by looking at both the body and wick of the candles, typically picking the more generous range.
The 4 Hour MACD is bearish and the 4 Hour Stoch RSI is oversold but historically (using this bear market as data) we can continue to see price declines in ETH despite oversold 4 Hour Stoch RSI. I will be tracking Daily Stoch RSI, 4 Hour Stoch RSI as well as 2 and 3 Hour Stoch RSI to look for evidence of when a breakout may occur in either direction, looking for Stoch RSI to match MACD for additional confidence.
2. Likely - Neutral - Slow short to $160/ETH before hitting support - We could just continue bouncing up and down in the wedge pattern and slowly drifting to the tip at $160/ETH. At that point you'll want to rely on other indicators like MACD and RSI to tell you which way the breakout will occur.
3. Unlikely - Long bullish wedge breakout to channel down resistance. Possible indicator would be Daily RSI, 4 Hour Stoch RSI and 4 Hour MACD all bullish. Would be looking to short again if it broke out up to the thicker red channel unless we were looking at a Bullish Daily MACD Cross.
That will be the new local low we are looking to break below for the short into the support range to make sense.