Crypto Academy / Season 3 - week 8 / Homework Submission post for Professor @cryptokraze / Trading Sharkfin Pattern / by @ononiwujoel
Hi Professor @cryptokraze, I am @ononiwujoel one of your students in Crypto Academy and a member of the steemit platform and this is my homework submission post from your lecture Trading Sharkfin Pattern
Introduction
The crypto market is one of the most sensitive markets and requires a high level of caution and technical analysis from traders and investors because of its high volatility and constant price movements. In as much as this is huge disadvantage to the crypto industry it can also be an advantage for traders that her skillful in technical analysis of assets and market psychology to develop top-notch strategies with which they can make good profits from the market volatility and constant price swings.
There are several strategies used by expert traders in the crypto market to observe price patterns and make entries and exits at convenient points to make profits. One of such patterns although not very popular but quite effective is what we are discussing in this assignment and that is Sharkfin Pattern
1 - What is your understanding of Sharkfin Patterns. Give Examples (Clear Charts Needed)
Sharkfin Pattern
Sharkfin Pattern is a unique trend reversal pattern that is formed when the price trend in a chart moves aggressively in an uptrend or downtrend and then makes a swift change of direction to the opposite direction with the same strength with which it was moving towards the former direction. And this sharp change of direction forms a V-shape on the chart, I believe the V-shape formed on the chart is the origin of its name "Sharkfin Pattern".
This pattern usually occurs around forms at the resistance or support points because this are areas where buying and selling between traders are very high and the market price movement is very unpredictable and volatile. So when there is a sharp rebound at the support areas or uptrends get exhausted at the resistance areas there are higher chances of a Sharkfin pattern occurring.
Examples of Sharkfin Pattern on charts
From the EOS/USDT chart with a 1day time frame above we can observe that there is a Sharkfin pattern formation, the price breaks through the resistance area before getting exhausted and falling sharply below the resistance area again thereby forming an inverted V-shape as usual with sharfin patterns occurring in an uptrend shift. This signals a swift of price movement from a strong bullish to a strong bearish respectively.
The BTC/USDT chart above with a 1hr time frame shows another sharfin pattern that is an opposite of the former. Here the price moves to from a dip downtrend to a swift change of direction into an uptrend and thereby forming a V-shape which is associated with sharfin patterns occurring in a downtrend shift.
This pattern shows there is quick trend rebound after prices fell below the support area and the rebound sharply brings the price back to where it was before the downtrend and when this happens the price is likely to go farther above its level before the sharfin pattern formation.
2 - Implement RSI indicator to spot sharkfin patterns. (Clear Charts Needed)
About RSI
RSI is an abbreviation for Relative Strength Index. This is a technical indicator that is used to observe the price movement on a chart and how it changes direction of movement with respect to time.
RSI indicator appears like an oscillator and moves in one direction horizontally between two ranges of 0 which signals extremely low and 100 which signals extremely high. The support area of the chart is usually placed on range 30 while the resistance point is usually placed at 70 to signify when the asset is oversold and overbought respectively and hence make it easier and more reliable when being used for trade entry and exit.
RSI indicator is very popular and well used in the crypto market by traders for because of its simplicity, accuracy and ability to be applied for both long-term trades and short-term trades.
Implementing RSI in Uptrend Sharkfin Pattern
From the EOS/USDT chart with a 1day time frame above, we can observe that the price moved rapidly in Uptrend above the resistance area which is marked by 70 on the RSI range before reversing below the resistance area again. So we can clearly see the inverted V-shape formed on the RSI indicator as well as on the chart.
Implementing RSI in downtrend Sharkfin pattern
From the BTC/USDT chart with a 1hr time frame above we can see that the price moved in a swift downtrend and there was a swing low which saw it in a sharp uptrend thereby also forming the V-shape and we can also observe that the price moved below the support at the 30 range in the RSI indicator into the oversold area before sharply reversing into an uptrend out of the oversold zone.
The RSI indicator in these cases helps us confirm that there was truly a Sharkfin pattern formation because with the RSI indicator showing us the range limits between 70 and 30 which signals overbought zone and oversold zone respectively we will just be doing a guess work and that is very wrong in trading. So the RSI indicator plays an important role in Sharkfin patterns.
3 - Write the trade entry and exit criteria to trade sharkfin pattern (Clear Charts Needed)
Buy Position
Trade entry criteria
Firstly the RSI indicator should be applied to your chart to enable you be sure of the oversold and overbought zones
The price movement should on a downtrend, then wait till it falls below the 30 range on the RSI indicator to the support area into the oversold zone and then reverse sharply away from the oversold zone forming a V-shape
The uptrend should be seen and closed to be sure the price is really leaving the oversold zone into a bullish
After the trend reversal from the oversold zone into a bullish signal we can place a trade order for our buy entry
Trade exit criteria
Firstly the RSI indicator should be applied to your chart to enable you be sure of the oversold and overbought zones
Stop Loss and Take profit should set with the Stop loss placed below the V-shape incase of failure and the Take profit placed above market price in a 1:1 RR ratio
Sell Position
Trade entry criteria
Firstly the RSI indicator should be applied to your chart to enable you be sure of the oversold and overbought zones
The price movement should be on an uptrend and break through the resistance area rising above the 70 range on the RSI indicator into the overbought zone before reversing sharply below the 70 range in a downtrend thereby forming an inverted V-shape.
The downtrend should be seen and closed to be sure it's a bearish signal and is leaving the overbought zone
After the trend reversal from the overbought zone into a bearish signal we can place our trade order for sell entry
Trade exit criteria
Firstly the RSI indicator should be applied to your chart to enable you be sure of the oversold and overbought zones
Stop Loss and Take profit should set with the Stop loss placed above the inverted V-shape incase of failure and the Take profit placed below market price in a 1:1 RR ratio
4 - Place at least 2 trades based on sharkfin pattern strategy (Need to actually place trades in demo account along with Clear Charts)
I'll be using demo trade for this section. So I'll be trading DOGE/USDT and LTC/USDT respectively.
First trade
I spotted a sharkfin pattern on doge/usdt chart with a 1day time frame and it was also confirmed by the RSI indicator, so I placed an order with stop loss and Take profit
Details from trade:
- Stop loss at 0.34000
- Entry points at 0.32000
- Take profit at 0.28000
Thereby making it a 1:1 RR ratio.
Second trade
I also spotted a LTC/USDT chart with a 1week time frame still very close to the end of a sharkfin pattern and placed an order with stop loss and Take profit
Details of trade:
- Stop Loss at 400
- Entry point at 300
- take profit at 200
Also making it a 1:1 RR ratio
Conclusion
To be honest this lecture is first time I'm getting to know about the Sharkfin pattern and so far I've seen that it is a very great opportunity for good profits especially in short term positions, but if a trader don't know how to utilize it properly and the precautions to take when trying to take advantage of it he may end up incurring loses instead of profits because its a two way possibility.
And trading at Sharkfin pattern formations require the use of Relative Strength Index Indicator because it will help us confirm if our observations is correct and if it really crossed the oversold zone or overbought zone.
It was a great lecture and I learnt a lot
Cc: Professor @cryptokraze