Crypto Academy Season 4 | Week 1: Trading with Strong, Weak and Gap Levels - Homework for @allbert
Weak and Strong levels are horizontal lines that anyone can draw on a chart.
These levels must be found independently by the trader, and to do so one simply needs to draw a line between the support levels (reached which the price tends to rise) or resistance (from which the price tends to fall - resistances can be overcome and become new levels of support over time).
These levels are created based on traders' demand to buy or sell, i.e. based on when many people in the market believe that a fair price has been reached for an entry point or an exit point. They are also created based on the TP (top point) and SL (stop loss) set by traders or leverage.
In this sense, a strong level is tested several times in the market and each time the price rises (even a lot) by bouncing off the support level - and in any case not much falling below it.
Conversely, a weak level is a level in which there is an increase in requests to buy / sell, but much less than those of the Strong level. For this reason, the Weak level is tested fewer times and the price may not bounce off it but breaks below it.
The gaps are literally "holes" in the chart, two candles suddenly, rather than follow each other, move away and interrupt the usual movement of the chart.
They are formed due to particularly large volume orders (for example some whale buying or selling, or in the vicinity of particularly strong resistance or support levels).
A particularly striking example happened in front of my eyes while I was doing my homework for the first task.
Observing the movements of Tron/Usd we clearly see a very large gap, also visible in the 15 minutes chart.
It is quite clearly a runaway gap, since it has been formed between red candles and a downtrend follow it.
In this chart you can instead see an Exhaustion Gap.
In this scenario, the price will alway come back in order to fill the gap and rebuild what was skipped.
It usually happens at the and of a run up, and symbolizes the last effort (at least for the moment) of the recent uptrend.
It is the simplest to recognize and therefore also the most useful for trading.
It indicates a positive trend change, separating a previous bearish phase from a new bullish one. In short, it can indicate a new momentum.
In this case the gap also tends to form a new support or resistance level.
Buy Entry with Strong Support and Resistance
Looking at the XTZ chart I noticed that the candles have overcome the resistance, retested and return to rise.
I bought at 4.48, which is the point where the previous breaking candle was exceeded.
I set the Stop Loss to 4.0 (- 12%) and the Take Profit to 5.69, thus making a profit of 27%.
Sell Entry with Strong Support and Resistance
In the Mana chart I have seen several breakdowns and retests of a resistance / support level.
I bought a Sell Entry when I saw a candle that kept going down.
I bought at 0.868 and set the SL to 0.874 which is where I detected the resistance level. I sold at 0.795 with about 10% profit, after noticing that the candles weren't dropping much further (and that theMACD,RSI indicators where not showing strong movements).
I found a breaking gap in the Eos chart (from a bearish trend, a bullish momentum was created). I bought at 4.65 and set an SL at 4.49 which is where the last candle was before the gap.
I set the TP at 5.00 with a 7.5% profit
First of all I want to thank @allbert for the great lesson he gave us on chart reading.
These are extremely valuable elements for learning how to do good crypto trading. I hope to be able to handle it better over time, because I admit that it was not that easy to try it, albeit in a demo version. Above all, finding the Gaps was very difficult, even just using them as examples of the different types of gaps.
As suggested by the professor, the MACD, RSI indicators are very useful for understanding the momentum and the level of their momentum.