[Understanding Trends II] - Crypto Academy / S5W3- Homework Post for @reminiscence01

_{Edited using canva}

1)a) Explain your Understanding of Trend Reversal. What is the benefit of identifying reversal patterns in the Market?

As we all know, when it comes to market trends, there are three main trends that every trader keeps an eye on when he/she enters the crypto market.
We have the bullish trend, the bearish trend, and also the ranging trend.

Trend reversal marks the end of an existing trend and the beginning of a new one. A reversal may happen in any time frame and can mean a difference between a big win, a break-even, or a loss.
Being able to spot a reversal is the fastest way to jump on a new trade.

If the market chart of a specific asset is in a bullish trend, I can’t be in that trend forever because it will get to a time where it will have to move down to a bearish trend and this movement is called the trend reversal.

Trend reversal is mostly affected by the demand and supply in the crypto market.

When the demand for that specific asset is high, we intend on seeing an uptrend (bullish), and also when the supply of the same asset is higher than the demand, the market chart draws a downtrend (bearish).

It can either be Top double Top giving you a bull or down double down giving you a bear.

Benefits

As a trader, it’s always important to know when to enter and exit the crypto market.
This is why the study of a trend reversal to much more important.
It helps traders predict whether the next pattern to be formed will be bullish or bearish. Traders with the ability to spot reversal have the chance of minimizing their risk of running at a loss and most times come out with a huge profit.

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b) How can a fake reversal signal be avoided in the market? (Screenshot needed).

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As the saying goes, no one is perfect and so are the charts.
The candlesticks that form to give us a clear chart of the market can’t always be reliable.
It sometimes gives us a fouls alert which leads investors into the wrong investment.

This is why it’s always advisable to use a technical indicator which sometimes helps in reading the market chart. Though these indicators sometimes give us a wrong view of the chart, which is why it’s always advisable to use more than one indicator in reading a market chart.
More indicators help you to identify the false signal in a way than using one indicator, though it might not give you the accurate result you need and might also give you false signal which will lead you to lose your assets but with more indicators, it filters out the faulty one and helps you maintain your momentum in the market by giving you an accurate result as to when a trend reversal may occur.

Let take a look at the screenshots below.

_{Screenshot taken from Tradingview}

In the screenshots above, I decided to use the Accumulation/Distribution, the RSI and the Moving average, and it can be seen that one of the indicators is giving us a wrong signal whiles the other two are giving us accurate results though it's not 100% accurate.

2)Give a detailed explanation on the following Trend reversal identification and back up your explanation using the original chart. Do this for both bullish and bearish trends (Screenshots required).

a) Break of market structure.

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As discussed in our previous lesson about a market structure where we stated that if the market structure is in a bullish form, then a trader is supposed to see a higher high and a higher low and also when it’s in a bearish form then the trader sees a lower high and a lower low. These highs and lows formed are as a result of traders withdrawing their assets and other traders entering the crypto market which is why we see a retracement in the market.

When the crypto market is moving in a specific direction let’s say in an uptrend direction then all of the sudden it changes direction to downtrend then we call it a break of structure.
In a break of structure, if the crypto market is in an uptrend forming a higher high and a higher low to a point where it reverses into forming a lower low, then we say that the structure of the market is broken.

Bullish break of market structure.

When we are talking about a bullish break of structure, then we mean that the market is in an uptrend making a higher high and a higher low where the new high to be formed will be higher than the previous high.
In this case, we say that buyers are in control of the market, but when it gets to a time where we see the market moving in a reversal order, as a result of a new Low forming to be lower than the previous low.
In a case like that, then we say that sellers are now taking over the market.

Let’s take a look at the screenshots below:

_{Screenshot taken from Tradingview}

Bearish break of market structure.

Bearish is the opposite of bullish.
In bullish we have a higher high and a higher low and when there is a break in the market structure then we see a reverse.

In this case, we intend on seeing a lower high and a lower low whereby the new low to be formed will be much lower than the previous low but in a case where we see that instead of forming a new low lower than the previous one but produces a higher pattern then we say that the market is in its reversal.

Let’s say bearish means sellers are in control of the market price but in a case where buyers start to gain control then we say there is a bearish break of structure.

Let’s take a look at the screenshots below:

_{Screenshot taken from Tradingview}

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b) Break of Trendline.

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In our previous lesson, we were though what trendline is.
We stated that trendline

"Trend lines are strategies used by traders to identify and confirm trends. It also helps traders to spot when a trend is beginning to break down.
A trend line can be drawn on any two-pillar point.
Piler points are just when the price goes from down to up or from up to down changing direction and establishing a price range."Referance

But when we are talking about the Break of the trendline, then we mean the turning point of a chart. That is to say that if the market chart of a specific asset is in an uptrend moving in a straight line and then all of the sudden takes a different direction, that particular pattern it draws before changing its direction is what we called the break of the trendline.

Bullish break of trendline

_{Screenshot taken from Tradingview}

The screenshot above clearly shows you how a bullish break in trendline looks like. The straight line in the screenshots is drawn to connect the lows.
It also shows where the break-in trendline occurred this occurrence is as a result of activities going on in the market.

Bearish break of trendline

_{Screenshot taken from Tradingview}

As seen in the screenshot above, the market keeps moving un a downtrend until it hits a resistance, this resistance forces the market to bounce to into an uptrend.

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c) Divergence

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Divergence is the disagreement between price and an indicator.
In a case where the market price is showing us a higher high and a higher low, in divergence, the indicator used might be giving us a different view from what we are seeing on the chart. The indicator used might be showing us a lower low and a lower high which means there is a disagreement between the indicator and the market price and we call that divergence.

Divergence gives traders an early warning on what’s going to happen in the market in the next new days. If the market chart is bullish and the indicator used is showing a bearish, it means that in the next few days, there is going to be a market reversal. Though it’s not always accurate it gives you a heads up of what to expect.

Bullish divergence

Bullish divergence only occurs when the market chart of a specific asset is giving us a downtrend but the indicator used is showing us an uptrend.
This means that the price of the asset is likely to shoot up in the next few hours or days.

As seen in the screenshots below

_{Screenshot taken from Tradingview}

In the screenshot above, I decided to use the RSI indicator and in using it, it can be seen that the market chart is giving us a downtrend whiles the RSI indicator is show an uptrend. Which means there will be a reverse in the market within the next few hours or days

Bearish divergence

Bearish divergence only occurs when the price reaches a new high but the indicator used is bowing us a lower high.
This tells traders that the price of the asset will be reversed to bearish in the new few hours or days.

Let’s take a look at the screenshots below:

_{Screenshot taken from Tradingview}

it can be seen that the market chart is giving us an uptrend whiles the RSI indicator is showing a downtrend. Which means there will be a reverse in the market within the next few hours or days.

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d) Double top and Double bottom

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Double Top

When we say the market is in a double top position, what it means is that if it's in an uptrend position, then it means that the new high formed has failed to be higher than the previous high and there is a likelihood that we are going to see a reverse. This is because buyers in the market have failed to push the market in other for the new high formed to be higher than the previous one.

As seen in the screenshot below:

_{Screenshot taken from Tradingview}

Double Bottom

While double top are formed in an uptrend, double bottom are formed in downtrend, which means if the new low formed fails to be lower than the previous low, then we say the market is in double bottom. This occurs when the sellers in the market fails to push the low formed in the market chart to be much more lower than then previous one.
When ever this occurs, then we intend on seeing reversal in the market within the next few days.

Seen in the screenshot below:

_{Screenshot taken from Tradingview}

place a demo trade using any crypto trading platform and enter a buy or sell position using any of the above mentioned trend reversal/continuation pattern.

Demo Trade using Divergence on tradingview.

In the definition of Divergence, it states that if the price action of an asset and the indicator used are not in line with each other then we call it divergence.

In the screenshot above, it can be seen that the market chat of the asset shows that the asset is in a downtrend whiles the indicator used show an uptrend.

Which means that, in the next few hours, the market chart of the asset is expected to rise.

After using the RSI indicator on the chart above, it shows that within the next 24 hours, MONABTC will rise since the indicator shows a rise in the market whiles the chart shows a fall in the market price thereby obeying the rules of Divergence.
so I decided to place a buy order on MONABTC which can be seen in the screenshot below.

As the price increases, I keep on gaining profit, but as soon as it starts to drop and hits the sell order mark, it assets sells with the little profit I've earned.

Conclusion

Understanding of trends both part I and II is something ever trader should always look into before hitting the market.
If a trader has a full knowledge and how to user this reversal strategies, He/she do'nt always have to worry about what's going on in the market because he will always have a full control over his or her asset and will always know when to enter and exit the crypto market with a profit.

I stop here by saying a big thank you to professor @reminiscence01 for equipping us with knowledge on understanding of trends.

At least I can now call myself a pro beginner lol, because I now know what's really going on in the market and how to read various charts using the indicators.

THANK YOU