The first step in trading is to judge the trend. Can we really judge it before the trend comes? Livermore has a famous saying: "There is nothing new on Wall Street. Speculation is as old as the mountains. What happened in the stock market today has happened in the past and will happen again in the future!" Why can we predict the future through history? It's because of human nature. Human nature is to seek profit and avoid harm. When everyone fantasizes about rising, they have their own share, and when falling, they have already escaped the top, which forms a collective pursuit of profit and avoidance of harm. When the market has a collective choice of seeking profit and avoiding harm at certain prices and certain key positions, it can give us a trace to follow. This is the law. We are trading with human nature. In the market, this law of human nature forms three market conditions: rising, falling, and oscillating.
Although gambling thinking is also used in trading, it is not gambling after all. We should find a market with dividends to enter in order to increase the chances of winning. Since it is a dividend market from the fundamental analysis, going long is the main choice, and shorting is only in a specific cycle or when more conditions are met.
How should we determine the trend? Can we use trend indicators? Trend indicators only reflect historical trends. What we need to do is to correctly predict future trends. Therefore, we must not only know the historical trends of the current market, but also the momentum of this trend and the volatility of the market, so as to increase the probability of correctly predicting future trends.
Now we use the three indicators of EMA, MACD, and Bollinger Bands to correctly analyze the current state of the Bitcoin market. The reason why we choose Bitcoin is that it can be traded 24 hours a day, it is a dividend market, and the volatility can obtain higher returns. The trading cycle chooses the 1-hour line, mainly because the shorter the time, the greater the impact of the market on the amount of a single transaction, and the more random it is. Since the longer the trend transaction, the clearer the trend will be, but the trading opportunities will also decrease if it exceeds 4 hours. The choice of market and trading cycle is related to the trader's style, trading schedule, psychological tolerance and market characteristics.
First, we calculate the average price and add an EMA720 moving average to the main chart. We are doing a 1-hour line. EMA720 is exactly the average price of 30 days. This cycle is a common settlement cycle in daily life.
1-hour candlestick chart EMA720
If the price is above this moving average, it means the current price is greater than the 30-day average price. If it is below the moving average, it means the price is less than the 30-day average price. From the above figure, we can see that the current price is higher than the 30-day average price. Let's add another EMA168, which is the weekly average price line.
1-hour K-line EMA720 and EMA168
The price has also stood above EMA168, which is the 7-day average price. So does the market have the power to rise further? At this time, we can look at the momentum, that is, the speed of the average price change. Of course, through the two moving averages, we can also roughly see that the momentum begins to slightly increase after a period of weakening, because the two moving averages are close and the slope has decreased for a period of time, and finally the 7-day average price has accelerated. In order to more clearly determine the momentum of the trend, we use the momentum indicator MACD.
1-hour K-line EMA720, EMA168 and MACD168
From MACD, we can see that the DIF line is above the 0 axis, indicating that the 7-day average price has indeed risen a little, and the distance between it and the signal line is also increasing, that is, the green energy column is in dark green. Seeing this, some traders began to consider buying, because it is now an upward trend and the momentum of the rise has been amplified after the correction. Some other more experienced traders will look at the signal line of MACD. There is a peak that is much higher than the zero axis just now, which means that the current market is very volatile. They will wait until the volatility is smaller before considering entering the market.
MACD is a momentum indicator and cannot directly reflect volatility. At this time, we choose Bollinger Bands, a dedicated volatility indicator, which will be clearer.
1-hour K-line EMA720, EMA168, MACD168 and BB720
Bollinger Bands also choose a 720-hour cycle, which is 1 month. We measure the volatility of 1 month. After adding Bollinger Bands, we can clearly see that the current volatility is very large, indicating that the market has been in a state of large fluctuations relative to the normal state in the previous month. Even if the price changes now, it is likely to be a back-and-forth fluctuation. We will continue to wait and see until a better entry point appears.
Measure the impact of volatility on trading through Bollinger Bands
Indeed, from the subsequent trend, it did not go out of the trend. Looking at the next wave of downward trend before it comes, except for the opposite direction, we use the same method to observe EMA and MACD. The market status shown is almost the same as the previous situation. The only difference is that the volatility is smaller this time. When the volatility is small, EMA and MACD have direction and momentum, then there is a high probability that a trend will emerge.