S4W3 - Homework Post for [Professor @allbert] Trading with Contractile Diagonals
Hello steemian ...
This is my new post in the Steemit Crypto Academy community, on this season 4 week 3, I will be working on a homework from professor @allbert with the theme "Trading with Contractile Diagonals”.
we will discuss it through the homework below:
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 chart pattern to occur. (screenshot required / Bitcoin not allowed)
Contractile diagonals or often referred to as wedges are one of the analysis techniques of chart patterns. This contractile diagonal is a chart pattern that is formed in the current trend and is usually formed in the secondary trend. The contractile diagonal is shaped like a conical triangle. There are two-way forms of the contractile diagonal. If the contractile diagonal is pointing upwards, it indicates the trend is going down, while if it is pointing downwards, it indicates the trend is going up.
This pattern occurs if the market consolidates with the slope of the support line (the line at the bottom) being steeper than the resistance line (the line at the top), which means the low price (low) will climb faster than the high price (high).
If the diagonal contractile pattern is during an uptrend, it will most likely experience a decline. Meanwhile, if the pattern is formed during a downtrend, it will most likely continue the trend.
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. (screenshot required / Bitcoin not allowed)
As I explained above, if the contractile diagonal is pointing upwards, it is expected that the next price trend will decrease and vice versa. As in the example in number 1, it is proven that when the contractile diagonal leads up the next trend will decrease, it is easy for us to determine because the price chart has already occurred, what if the price chart has not been formed. In detail, there are 6 requirements to create a diagonal contractile pattern to meet the operability criteria for the formation of a diagonal contractile pattern.
- Wave 1 must be bigger than wave 3
- Wave 3 must be bigger than wave 5
- Wave 2 must be bigger than wave 4
- Point 2 and point 4 must touch the support line (bottom line).
- Points 1,3,5 must touch the resistance line (upper line)
- Both support and resistance lines must cross if it continues to be drawn.
The picture above is an image that meets the operability criteria because the picture above meets the 6 requirements above and it is proven that the price trend has decreased.
The image above is an example of an image that does not meet the operability criteria because the image above does not meet the 6 conditions above, in the image above point 3 does not touch the resistance line which makes the pattern not formed and the price trend goes up not according to the analysis results.
3- Through your Verified exchange account, perform one REAL buy operation (15 USD minimum), through the Contractile Diagonal method. Explain the process and demonstrate the results and graphical analysis through screenshots. Your purchase data must match your analysis data: such as cryptocurrency and entry price.
for this question I will do a real operation with my Upbit account I will do it with XRP/USDT assets. I purchased 300,000 IDR (21 USD). So, at this time the price of 1 XRP is 13,400 IDR, so I also get 22,388 XRP.
The reason I'm buying now is that my analysis is based on diagonal moves. if seen, currently the diagonal contractile pattern shows on diagonal 2 and is in a downtrend. Then, if you look in more detail, you will find indications of a price reversal towards an uptrend. If this is following the diagonal contractile principle, then diagonal 3 is currently being formed which will become an uptrend, for that I also place a take profit at the price of 1 USDT (14,300 IDR) or as much as 7.46%.
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. Bitcoin is not allowed.
Through this demo account, I will explain how to make sales using the contractile diagonal method.
First, you have to make sure the occurrence of diagonals 1 and 2, where diagonal 1 is an uptrend and diagonal 2 is a downtrend. When looking at the diagonal moving up, this example is a perfect buy where it is the best point to buy at 0.1 USDT. Next, the diagonal pattern continues to form into diagonal 3 to diagonal 5. For diagonal 5 is the time for you to be very careful because this is the best time to sell, seeing that to reach the best peak time to sell is very difficult, then you can sell it when diagonal 5 shows a price reversal, and here I am an example selling it at 0.12 USDT (Profit 20%).
5- Explain and develop why not all contractile diagonals are operative from a practical point of view. (screenshot required / Bitcoin not allowed)
The reason why not all contractile diagonals work from a practical point of view is that this method is rare in real-world markets. Although this method is easy to understand, in reality, it is difficult to find a perfect contractile diagonal based on the 6 criteria.
Simply put, this method requires diagonal 1 to be longer than 3 and 5, but in reality, it is not so easy for us to find this, especially how this method requires lines 2 and 4 to touch the support line. Then, this analysis takes a long time because creating a pattern requires a lot of changes in price movements. However, we still have to appreciate how the experts discovered this method and made it practical, it's just that for most people it is very difficult to use this method so that many people look for other easier methods.
Conclusion
The diagonal method is a method that requires complex price movements to make the analysis more accurate. This method is somewhat similar to the Elliot Wave method which relies on multiple waves to predict market price reversals. This method utilizes the momentum of the wave which if the wave is formed perfectly then the prediction will be easy to do. However, it is very difficult to find waves that meet the 6 conditions in real-world trading, they always have drawbacks. For beginners, of course, this is not recommended and requires great analysis and experience to be able to use this method properly and correctly.
Reference
https://id.upbit.com/
https://www.tradingview.com/
https://www.seputarforex.com/artikel/pola-rising-wedge-dan-falling-wedge-243621-31
http://bigbrothersinvestment.com/detailpost/cara-trading-menggunakan-rising-wedge