Trading with Contractile Diagonals - Crypto Academy /S4W3 - Homework Post for Professor @allbert.

in SteemitCryptoAcademy3 years ago (edited)

QUESTION 1
Define in your own words what a contractile diagonal is and why it is important to study it. Explain what happens in the market for this char pattern to occur.

The Contractile Diagonal

Contractile diagonal is a trading strategy which is used in spotting trend reversals. It is based on the 1 to 5 wave pattern.
The formation of the contractile diagonal can be compared to wedges which we normally know the two types of wedges inclidng the falling and rising wedges.

336CFCF5-07A4-4BF4-A7CD-E6C930D58675.png

So with the usage of the contractile diagonal, we can easily spot possible entry and exit position using the 1,2,3,4,5 wave patterns which I will be illustrating in the screenshot below.

What happens for the pattern to occur

The market normally moves in a wavelike structure. This wavelike pattern are normally made up small demand and supply zones which causes pull back and retracements before continuation of a trend. This normally causes the 1 to 5 patterns. With this. We see its formation.
Now moving to the trend reversal, we see its formation due to over if an uptrend or oversold if a downtrend caused by fatique in buying or selling that asset respectively.

7A3B0547-2DFE-4341-9E28-EDD916C829F9.jpeg

QUESTION 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.

Criteria for the operation of the Contractile Diagonal

The criteria for the operation of the contractile diagonal is quite simple. We just need to know the following steps below and employ theem in the chart.

  • The first aspect is that the wave 1 should br greater than the wave 3
  • The second aspect is that the wave 3 has to be significant more than wave 5
  • The third aspect; the wave 2 has to be larger than wave 4
  • A line must be drawn which joins point 1, 3 and 5
  • A line must also be drawn which joins point 2 and 4
  • We should have convergence of the two lines drawn.

With this formation, we can savely say the formation of the contractile diagonal has been form and we can then find an entry position. This is shown in the screenshot below.

526280ED-BC55-4258-944B-D6AD4EC14F4F.png

FFBC5A42-9FB6-4DA1-80FC-0F834669C0B1.png

Example that does not meet the criteria.

Showing an example that does not meet the criteria of the diagonal contraction, we see that the below graph shows the formation, but the 1, 3 and 5 point does not joins all together which is not a perfect entry. This is shown in the screenshot below.

ECC171B5-7178-41E0-B0A4-BED95B412FD1.png

FD345240-0971-4398-A61C-BC4CD2843D8A.jpeg

QUESTION 3
Through your verified exchange account, perform one real buy operation through the contractile diagonal method. Explain the process and demonstrate the result s and graphical analysis through screenshots. Your purchase data must match your analysis data; such as cryptocurrency and entry price.

Performing a buy using the Contractile Diagonal Strategy

TradeEntry

For the trade entry we will need to find a chart that meets all the criteria as listed above.
For my entry, I found the pundix token which has made the 1-5 wave pattern. Afer drawing I then waited for the breakout of the upper line with a bullish candlestick which I entered a buy order on the second candle formation. This is as shown in the screenshot below.

FE2F05A3-8322-4F49-8FEC-A1B19A545D19.jpeg

Trade Exit

Exiting the trade is about setting proper stop loss and take profit levels. Since it is a buy position, my stop loss level will be placed a few pips below the 5-wave and take profit level at the 2-wave. This is as shown in the screenshot below.

954D4103-73CB-4E53-A017-AD6FAA3F4DED.jpeg

0A8B56FF-F3FD-4DC8-BE9A-65F82F30B864.jpeg

B251CEDA-2FA6-4535-AAFE-6DD303E40F29.jpeg

AD9516A3-A920-46A2-B1A4-1590CB580527.jpeg

QUESTION 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.

Trade Entry

For the trade entry we will need to find a chart that meets all the criteria as listed above.
For my entry just as above, I found the dotup token which has made the 1-5 wave pattern. Afer drawing I then waited for the breakout of the lower line with a bearish candlestick which I entered a sell order on the second candle formation. This is as shown in the screenshot below.

AD3C7E3D-E110-4E5A-BA1E-BE04C22C5CEC.jpeg

Trade Exit

Exiting the trade is about setting proper stop loss and take profit levels. Since it is a buy position, my stop loss level will be placed a few pips below the 5-wave and take profit level at the 2-wave. This is as shown in the screenshot below.

BF604D42-CEE0-4B71-99F4-C33AFA3178A5.jpeg

515430F3-7E06-4673-9A3A-946A94717639.jpeg

CE9AACF8-1077-4CF0-B3C2-A15C5015C8EC.jpeg

QUESTION 5
Explain and develop why not all contractile diagonals are operative from a practical point of view.

Why not all contractile diagonals are operative.

The main idea behind trading is making more profits than losses. It is true that no matter how professional you in trading, you must always make losses, but the idea is to minimize this losses.
Pointing out now to the contractile diagonal strategy, we see that the risk to reward ratio when setting up the chart is always misleading.

Normally the take profit level is to be set at the 2-wave while the stop loss at the 5 wave, but sometimes we see the prices rises to the 3 level and turns back, or the stop loss level being further than the take profit level making it a more riskier trade. This can be shown in the screenshot below.

1575DB36-DCF8-487E-B2EC-FD06EAE76976.png

9B98EE5D-FE2E-4BFC-B50D-6A29EC471C5C.jpeg

Conclusion

We have seen the definition of the contractile diagonal and its formation and not forgetting to mention what causes its formation in the market. We have also seen its usage to find good entry and exit regions although it turns to have a little problem concerning its risk to reward ratio, but with the good analysis, traders can make some good pips from the strategy.

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