Crypto Academy Season 4/Week 3| Intermediate Course: Trading With Contractile Diagonals.
Introduction
Hellow fellow steemians, it's the 3rd week of the steemit crypto academy season 4. The season is running fast. This week lesson by @allbert is about Trading With Contractile Diagonals
Let's Get Started
1. Define In Your Own Word What A Contractile Diagonals Is And Why It Is Important To Study It. Explain What Happens In The Market For This Chart Pattern To Occur.
Contractile Diagonals is a price pattern that I formed by the contraction of candlesticksin either bullish or bearish trend forming a 1-2-3-4-5 wave pattern. This contraction is formed when the price form a swing point then make a correction before it continues with the trend. The corrections (reverse) is formed twice and we will have three swing point. Once we see something like this in a chart we will trade the opposite of the trend.
What am trying to say is that when the Contractile Diagonals pattern is completely formed in an uptrend market, we will place a short order and vise versa. The screenshot below explain the illustration above.
Screenshot from tradingview mobile app
The Contractile Diagonals pattern is just like the Eliot wave pattern. The difference is just the way traders trade this pattern. In Eliot wave traders trade the swing point but in the Contractile Diagonal pattern, the opposite direction of the trend will be traded after this pattern is completed
It is important to study this pattern because once this pattern is formed and it is confirm, it's sure that the market will reverse. So if we study this pattern well and come across it when analysing a crypto chart we will use it to confirm the market trend. One of the importance of using this pattern is to confirm trend.
Another reason it's important to study this trend is because it a great signal for trading reversal trend and the trend is always strong if the pattern is valid.
Ways Of Confirming The Contractile Diagonals Pattern/structure
For the Contractile Diagonal pattern to be tradeable or valid the matter must meet the following requirements or else we will have to wait for another pattern.
- 1- The 1st wave must be greater than the 3rd wave
- 2- Correction wave 2 must be greater than correction wave 4
- 3- Wave 3 must be greater than the 5th wave.
- 4- The trace of the first Diagonal must join points 1-3. Point 5 should be higher than this levels.
- 5- The trace of the 2nd diagonal should join points 2-4
- 6- Lastly the two diagonal lines should be able to cross.
The above are the requirements for this pattern to be valid. Sometimes the 4th and 5th policy are not met but the 1st three policy must be met otherwise this pattern is not valid and we will have to wait for another setup.
2. Give An Example Of A Contractile Diagonal That Meets The Criteria Of Operability And An Example Of A Contractile Diagonal That Does Not Meet The Criteria
With the above Criteria above for confirming the Contractile Diagonal I have followed the policy closely and I used it to figure out the valid Contractile Diagonal and the invalid ones.
screenshot from tradingview mobile app
The above screenshot is the chart show the valid/ tradeable Contractile Diagonal. You can see that this chart satisfies all the 6 criteria for confirmation of the Contractile Diagonal
The screenshot below is a chart showing a Contractile Diagonal that's not valid.
screenshot from tradingview mobile app
Looking at the chart you will see that the 5th wave is the longest which is not supposed to be. Being so it not part of the criteria for a valid Contractile Diagonal. And as you can see putting a tool for take profit and stop loss the chart has hit the stop loss it doesn't obey the criteria for confirmation of the Contractile Diagonal.
3. Through Your Verified Exchange Account Perform One Real Buy Operation (15$ minimum), Through The Contractile Diagonal Method. Explain The Process And Demonstrate The Result And Graphical Analysis
After so many failed pattern due to instability of the market I got a valid pattern from TWTUSD pairs. After seeing the pattern I drew the 5 wave point to confirm the Pattern. I see that it's valid then I drew the two diagonal lines at the swing point. After seeing the the pattern is valid, I went to my binance account to place a trade.
I edited my buy order with my binance account taking the positions that I have analysed with the tradingview mobile app. I bought at 0.9654usd. I set my risk-reward ratio to 1. Set stoploss at 0.9335usd and take profit to 0.9968usd.
screenshot from tradingview mobile app
This is the screenshot of how I analyze the market. After analysing I went to my binance account to place the trade. I bought TWT with 21.24 USD.
After some seconds the order was activated and it went to my wallet. Due to the market been very volatile yesterday I have to close the trade with a profit of 0.12 USD
I took the screenshots then close the trade at rate 0.9702usd
screenshot from tradingview mobile app
4-Through A DEMO Account, Perform One Sell Operation, Through The Contractile Diagonal Method. Explain The Process And Demonstrate The Results And Graphical Analysis Through Screenshots.
For the sell order on my demo account I will be using metatrader4 trading app and all screenshot will be from the app.
It's very are to find his pattern an also be valid. I watch the market closely until I saw a pattern and I confirmed that it is valid. I analyze it using arrow to mark my swing points. Since metatrader4 doesn't have the tools I used on tradingview.
After analysing the chart, I placed a sell order. And I a short time I get profit. Due the the market been very volatile I was able to get a quick result. I close the trade. Below are screenshot from the trade.
Above are the screenshots featuring my entrypoint, exitpoint and my profit respectively.
5.Explain and develop why not all contractile diagonals are operative from a practical point of view.
Not all Contractile Diagonal are operative because of some action that occur in the market. This action might cause the market to be volatile. For instance now the pattern is already forming e already have the 1st wave up to the 3rd wave. A whale can enter the market at this point and place a trade affecting the volume of the market. The market will become volatile/ unstable this might cause the price to go far more than what we expected.
In the screenshots below the Contractile Diagonal is not operative because wave 5 is longer than wave 3 which is not what is expected. This is caused by the action of other traders. When we are waiting for a pattern to form other traders are using an entire different strategy which might give them signal against our own analysis making them pull the market.
screenshot from tradingview mobile app
As you can see in the screenshots above the pattern is not in operative because the 5wave is longer than the third wave.
For any Contractile Diagonal pattern that are not operative, this is caused by the action of other traders trading the same pairs at the moment, or news. News is also another major effect of Contractile Diagonal because when a news is dropped it will affect the stability of the market forcing the price to move in a swift way.
Conclusion
Contractile Diagonals is a price pattern that I formed by the contraction of candlesticksin either bullish or bearish trend forming a 1-2-3-4-5 wave pattern. This contraction is formed when the price form a swing point then make a correction before it continues with the trend.
The Contractile Diagonals pattern is just like the Eliot wave pattern. The difference is just the way traders trade this pattern. In Eliot wave traders trade the swing point but in the Contractile Diagonal pattern, the opposite direction of the trend will be traded after this pattern is completed.
CC @allbert