Jun 07, 2022
6 mins read
Today we're talking about how to easily identify trends, key supports and resistances to analyse the basics of any cryptocurrency. For this, you won't need anything special, just a free TradingView account and some time. In case you still don't have an account in TradingView, you can get one for free here. Just click on "Try Free Basic" in the middle of the screen:
Once you have your free account, it's time to choose a chart. Just click on "Products" and then "Charts" in the top menu and choose the asset you want to analyse. I will choose Bitcoin here for obvious reasons, as is the most popular cryptocurrency in the market right now:
Once you have your chart, it should look empty, just like this:
Before adding any indicator, it's important that you manually identify the main trends, supports and resistances. To make it easy, just zoom out and take a look at the chart: can you identify the ascending and descending cycles? Once you have identified these, you want to trace a line following these rules:
1) If it's an uptrend, you should draw the line below the candles
2) If it's a downtrend, you should draw the line above the candles
3) In any case, the trend should be drawn using the body of the candles (top or bottom according to what you're drawing)
4) The more points the line touches, the more reliable your trend is
I'm not going to explain how to correctly draw a trendline as this is not a trading course, it's an article explaining how I set up the basics of my charts, but you can find some good resources here, here, here and here.
If you already drew your trendlines in the BTC 1D chart, it should look something like this:
Now at least you know if we are in an uptrend (green) or a downtrend (red). So what I do next is just manually try to find areas of support and resistance and I use the horizontal line tool to draw them. You can find this tool in the same menu as the trendline:
Once you have identified at least some supports and resistances, you'll have a lot of horizontal lines like the ones you see in the chart above. You can find a good explanation of how to identify these here, but there's a small twist to this and that's the Fibonacci Retracement tool, which allows you to easily identify the most important support and resistances just by drawing a trendline so you don't have to manually do everything.
I usually draw at least some lines anyways, as I like to have multiple sources of information, but in case you don't want to do it, it's OK, just use Fibonacci Retracement after drawing the main trendlines.
You can find the Fibonacci Retracement tool on the sidebar, just make sure you're using Fibonacci Retracement and not Fibonacci Extension or any other Fibonacci. Right now we are always talking about Fibonacci Retracements:
To correctly draw Fibonacci Retracements you'll use the trends you identified earlier with again, a little twist. And that's that you'll draw the trendline from the bottom to the top of the movement. Here's an example of 3 valid Fibonacci trendlines from bottom to top:
Do you see how I drew the lines from where the uptrend starts to the absolute top in the 3 examples? In case this is not clear, this is an excellent tutorial on how to do it correctly, one of the best I've seen.
You can draw trendlines and Fibonacci in any timeframe (monthly, weekly, daily, 4H, 2H, etc), just make sure you're following the rules explained in this article for both and of course, I recommend doing some research to learn more about how to draw them in the best possible way.
So what do all these lines mean? To understand this you need first to identify where you're standing, meaning that you need to find where the price is right now between these lines.
In this example, I left just one Fibonacci Retracement traced from December 2020 low to November 2021 all-time high and I reset the settings to default so you can see it in the same way you'll see it the first time you use this indicator:
In the example, I pointed out:
a) Where the Fibonacci trend starts (December 2020 low)
b) Where the Fibonacci trend ends (November 2021 all-time high)
c) Where is Bitcoin right now
d) Current Support
e) Next Resistance
We can see that Bitcoin is between the 28/29K support and the 37K resistance and we're using a long period for this analysis, which makes it more reliable.
You can easily change how this looks and customize where you want the lines to be extended by right-clicking on the indicator:
What does it mean when we say that Bitcoin is between the 28/29K support and the 37K resistance?
-- Every support is a price level where the asset could hold and rebound,
-- Every resistance is a price level where the asset could be rejected and fall to previous levels
-- Here 28/29K is where Bitcoin could bounce, and 37K is where Bitcoin could be rejected.
It's important to understand that a support or a resistance is not a price target, they just give you an idea of where you would expect some kind of relief or difficulty. The higher the time frame you use, the more relevant these key levels will be.
You can also trace many Fibonacci to find confluence areas, meaning that those levels where you see many lines overlapping will be the most important levels to watch. To do this just draw many Fibonacci Retracements using different periods. In the Bitcoin chart, you could draw for example:
-- A Fibonacci Retracement from December 2020 low to April 2021 top
-- Another Fibonacci Retracement from July 2021 low to November 2021 top
That would look like this:
After tracing more than one Fibonacci Retracement you just have to look for areas where many lines are close or overlapped:
I drew two white boxes around 35-38K and 45-49K and those are areas with many Fibonacci lines. Another example could be the 28/29K range where Bitcoin has been lately.
So now you have Trendlines, Support, Resistance, Fibonacci Retracements and Confluence between Fibonacci Retracements to apply to your charts. This won't give you a hint of where the market is going in the next hours but you'll know at least what's the current trend, where are the potential relief and challenging areas.
It's always recommended not to buy exactly at the support and sell exactly at the resistance. Remember these are not price targets, but levels where the price action could reverse, so you want to use this as a reference, but not as trading indications. It's always better not to try to time the market and the more indicators you use to confirm a trend, the more reliable your analyses will be.
Once you have already dominated this, you can find more on how to use just this tool to set up trades here. I use the 50% level strategy, which means that from all the levels you see when you draw a Fibonacci, the most important one is the 50% level, as it points out if the asset is still in the bearish or bullish territory:
-- If it's below the 50% level the chances are the price could still go down to the next support
-- If it's above the 50% level the chances are the price could continue going up above that level.
In a simplified view using the same Bitcoin 1D Chart:
Now you can draw also 50% Fibonaccis wherever you like, and it's one of the most useful tools I use to decide if I buy or wait for bullish or bearish confirmation to set up a trade.
I hope you enjoyed this update and thank you for being part of Premium.
See you in the next update,