3 ways to trade Bitcoin and altcoins during a bear market

September 2, 2022 Coin Telegraph

Everyone’s a genius during a bull market, but how should one trade in a bear market?

Markets are scary right now, and while the situation is likely to worsen, it doesn’t mean investors need to sit out and watch from the sidelines. In fact, history has proven that one of the best times to buy Bitcoin (BTC) is when no one is talking about Bitcoin.

Remember the 2018–2020 crypto winter? I do. Hardly anyone, including mainstream media, was talking about crypto in a positive or negative way. It was during this time of prolonged downtrend and lengthy sideways chop that smart investors were accumulating in preparation for the next bull trend.

Of course, nobody knew “when” this parabolic advance would take place, but the example is purely meant to illustrate that crypto might be in a crab market, but there are still great strategies for investing in Bitcoin.

Let’s take a look at three.

Accumulation via dollar-cost averaging

It’s helpful to be price agnostic when it comes to investing in assets over the long term. A price agnostic investor is immune to fluctuations in value and will identify a few assets that they believe in and continue to add to the positions. If the project has good fundamentals, a strong, active use case and a healthy network, it makes more sense to just dollar-cost average (DCA) into a position.

Take, for example, this chart from DCA.BTC.

*Results of weekly dollar cost averaging into Bitcoin. Source: DCA.BTC*

Investors who auto-purchased $50 in BTC weekly over a two-year span are still in profit today, and by DCA, there is no need to make trades, watch charts, or subject oneself to the emotional stress that is associated with trading.

Trade the trend and go long off extreme lows

Aside from steady, reasonably sized dollar-cost averaging, investors should be building a war chest of dry powder and just sitting on their hands waiting for generational buying opportunities. Entering the market when it’s deeply oversold and all metrics are in extreme is typically a good place to open spot longs but with less than 20% of one’s dry powder.

When assets and price indicators are two or more standard deviations away from the norm, it’s time to start looking around. Some traders zoom out to a three-day or weekly time frame to see when assets correct to higher time frame support levels or previous all-time highs as a sign to invest.

*200-week moving average heatmap for Bitcoin. Source: LookIntoBitcoin*

Others look for price to flip key moving averages like the 118 DMA, 200 WMA and 200 DMA back to support. On-chain fanatics typically follow the Puell Multiple, MVRV Score, Bitcoin Pi indicator or Realized Price indicator to see when extreme multi-year lows are hit as a sign of when to buy.

Either way, opening spot longs during extreme sell-offs usually turns out to be a good swing trade or even entry point for a multi-year-long position.

Do nothing, until the trend changes

Trading during a bear market is hard, and capital and portfolio preservation are the top priorities. For this reason, it’s best for some investors to just wait for confirmation of a trend change. As the saying goes, “the trend is your friend.” Everyone is a genius and a superb trader during a bull market, so if that was you, then wait for the next bull trend to roll around and go be a happy-go-lucky genius then.

Downtrends, consolidation and bear markets are notorious for chopping up traders and reducing one’s portfolio size, so it’s unwise to trade against the trend unless one has a PNL positive method for trading during bear trends and some skill at shorting.

For crypto investors, it’s important not to live in a vacuum and keep an eye on the equities markets. Crypto traders have a tendency to only focus on crypto markets, and this is a mistake because equities markets and BTC and Ether (ETH) prices have shown a strong correlation in the past two years. In one’s charting suite of choice, it would be wise to keep the S&P 500, Dow Jones or Nasdaq charts up alongside BTC’s or ETH’s daily chart.

*Bitcoin correlation to equities markets. Source: TheBlock*

In the most recent trend reversal, BTC’s price action was the canary in the coal mine that began to chirp louder and louder as the United States Federal Reserve amplified its intent to raise interest rates. It is easy to be misled by the minuscule moves that occur in Bitcoin’s four-hour and daily price charts, and one could easily be lured into some hefty positions based on the belief that BTC is on the verge of a reversal.

Keeping an eye on the market structure and price action of the largest equities indexes will provide crucial insight into the strength and duration of any bullish or bearish trend that Bitcoin might exhibit.

This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter author at Cointelegraph. Each Friday, Big Smokey will write market insights, trending how-tos, analyses and early-bird research on potential emerging trends within the crypto market.

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

Pro traders may use this ‘risk averse’ Ethereum options strategy to play the Merge

July 31, 2022 Coin Telegraph

Coin Telegraph

Ethereum's “Merge” upgrade is expected to induce volatility in ETH price, but options traders can safely remain long by using this strategy.

Ether (ETH) is reaching a make-it or break-it point as the network moves away from proof-of-work (PoW) mining. Unfortunately, many novice traders tend to miss the mark when creating strategies to maximize gains on potential positive developments.

For example, buying ETH derivatives contracts is a cheap and easy mechanism to maximize gains. The perpetual futures are often used to leverage positions, and one can easily increase profits five-fold.

So why not use inverse swaps? The main reason is the threat of forced liquidation. If the price of ETH drops 19% from the entry point, the leveraged buyer loses the entire investment.

The main problem is Ether's volatility and its strong price fluctuations. For example, since July 2021, ETH price crashed 19% from its starting point within 20 days in 118 out of 365 days. This means that any 5x leverage long position will have been forcefully terminated.

How pro traders play the “risk reversal” options strategy

Despite the consensus that crypto derivatives are mainly used for gambling and excessive leverage, these instruments were initially designed for hedging.

Options trading presents opportunities for investors to protect their positions from steep price drops and even profit from increased volatility. These more advanced investment strategies usually involve more than one instrument and are commonly known as "structures."

Investors rely on the "risk reversal" options strategy to hedge losses from unexpected price swings. The holder benefits from being long on the call (buy) options, but the cost for those is covered by selling a put (sell) option. In short, this setup eliminates the risk of ETH trading sideways but it does carry a moderate loss if the asset trades down.

*Profit and loss estimate. Source: Deribit Position Builder*

The above trade focuses exclusively on the Aug. 26 options, but investors will find similar patterns using different maturities. Ether was trading at $1,729 when the pricing took place.

First, the trader needs to buy protection from a downside move by buying 10.2 ETH put (sell) $1,500 options contracts. Then, the trader will sell 9 ETH put (sell) $1,700 options contracts to net the returns above this level. Finally, the trader should buy 10 call (buy) $2,200 options contracts for positive price exposure.

It is important to remember that all options have a set expiry date, so the asset's price appreciation must happen during the defined period.

Investors are protected from a price drop below $1,500

That options structure results in neither a gain nor a loss between $1,700 and $2,200 (up 27%). Thus, the investor is betting that Ether's price on Aug. 26 at 8:00 am UTC will be above that range, gaining exposure to unlimited profits and a maximum 1.185 ETH loss.

If Ether's price rallies toward $2,490 (up 44%), this investment would result in a 1.185 ETH net gain—covering the maximum loss. Moreover, a 56% pump to $2,700 would bring an ETH 1.87 net profit. The main benefit for the holder is the limited downside.

Even though there is no cost associated with this options structure, the exchange will require a margin deposit of up to 1.185 ETH to cover potential losses.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Here’s how pro traders use Bitcoin options to profit even during a sideways market

April 3, 2022 Coin Telegraph

Bitcoin Price

BTC price might be consolidating or even reaching a short-term top, but that doesn’t stop pro traders from using options to generate profits.

Bitcoin (BTC) price swings might be impossible to predict, but there is a strategy frequently used by pro traders that yields high returns with minimal cost.

Typically, retail traders rely on leveraged futures positions which are highly susceptible to forced liquidations. However, trading Bitcoin options provide excellent opportunities for investors aiming to maximize gains while limiting their losses.

Using multiple call (buy) options can create a strategy capable of returns six times higher than the potential loss. Moreover, these can be used in bullish and bearish circumstances, depending on the investors' expectations.

The regulatory uncertainty surrounding cryptocurrencies has long been a significant setback for investors and this is another reasons why neutral market strategies have drawn traders' attention since Bitcoin's rally stagnated near $47,000 on March 30.

How to profit in a sideways market

The long butterfly strategy allows a trader to profit even if Bitcoin's price remains flat. However, it's important to remember that options have a set expiry date. This means the desired price outcome must happen during a specified period.

The Bitcoin options were set for the April 29 expiry, but this strategy can also be used on Ether (ETH) options or a different time frame. At the time of writing, Bitcoin was trading at $47,370 and although the costs will vary, their general efficiency should not be affected.

*Profit / Loss estimate. Source: Deribit Position Builder*

The suggested bullish strategy consists of buying 7.3 BTC call (buy) options with a $46,000 strike to benefit from a price increase. Meanwhile, selling 16 BTC call (buy) options at 50,000 creates a negative exposure above that level.

The trader should buy 4.8 BTC worth of $52,000 call options and 3.9 BTC at $55,000, balancing out the risk above this price.

The gains can be four times higher than the potential loss

As the estimate above shows, any outcome between $46,700 (down 1.5%) and $53,500 (up 12.9%) yields a net gain. The best possible outcome happens at $50,000 and results in a 0.47 BTC net gain. Meanwhile, this strategy's maximum loss is 0.11 BTC if the price on April 29 trades below $46,000 or above $55,000.

The allure of this butterfly strategy is the trader can secure gains that are 6 times larger than the maximum loss. Overall it yields a much better risk-reward versus leveraged futures trading, considering the limited downside.

This options strategy trade provides upside even if Bitcoin's price remains flat and the only upfront fee required is 0.11 BTC, which also reflects the maximum loss.

Here’s how traders capitalize on crypto market crashes and liquidations

January 19, 2022 Coin Telegraph

Coin Telegraph

Everyone’s a genius trader during bull markets, but there are also ways to generate profits during bear trends. Here’s how to capitalize on liquidations.

The first week of the new year saw a vicious pullback across all cryptocurrencies in the market. Ether (ETH) price dropped from its November peak at $4,800 peak to under $3,000 on Jan. 8 and Terra’s LUNA governance token also dropped from $85 on Dec. 31 to $67 on Jan. 8, 2022.

These unexpected dramatic moves often cause liquidation cascades in the lending market, but they also create unique buying opportunities in the collateral liquidation markets.

Kujira’s Orca protocol is a platform built on the Terra network and it allows investors to bid on bETH (bonded asset of Ether) and bLUNA (bonded asset of LUNA) at a discounted price when the at-risk collateral is liquidated.

As a pseudonymous analyst at Kujira pointed out,

“Liquidation has for so long been the ‘shady underbelly’ of lending platforms and monopolised by bots so much that the average user barely knows it's going on, least of all how they could benefit from it”.

Kujira allows anyone to participate in the liquidation process by grasping the opportunity to acquire these assets at a discounted price.

In the recent crash on Jan. 8, the lowest price one could buy Ether (in its bonded asset bETH form) was $2,833, while the market price of Ether was around $3,000. Similarly, traders could buy bLUNA as low as $58.90 while LUNA’s spot price was around $67.

*Liquidation stats from Kujira. Source:* *Twitter*

Let’s take a closer look at the strategies for acquiring bETH and bLUNA at a discount during a market crash.

Market structure provides unique opportunities to buy at a discount

In the Terra ecosystem, participants can borrow Terra USD (UST), the stablecoin of the Terra blockchain, from DeFi protocols such as Anchor to participate in high-yield liquidity pools, IDOs or any other profitable trading activities involving UST.

In order to borrow UST, participants need to deposit bonded assets (bETH or bLUNA) as collateral to Anchor. The maximum amount each wallet can borrow is 60% of the collateral value, often referred to by DeFi protocols as the maximum LTV (loan-to-value).

In a bull market where Ether and LUNA prices are on the rise, the LTV continues to decrease and no collateral is at risk. When the price of Ether or LUNA goes down, the collateral value decreases and if the LTV exceeds 60%, a liquidation event is triggered.

This alerts Anchor to sell the proportion of the collateral that exceeds the maximum LTV at a discounted fire-sale price on Kujira Orca. This is where potential buyers on the other side of the trade can buy the collateral at a discount.

How to capitalize on pricing anomalies in ETH and LUNA

Here are some simple steps investors can follow if they want to purchase Ether or LUNA at a discount.

After connecting the Terra wallet to the platform, an investor chooses the asset they would like to bid (currently only bLUNA and bETH are available), then selects the premium (the percentage of discount from spot) to receive.

After clicking “Place My Bid” to submit the bid, the investor will see the “My Bids” window. It takes 10 minutes for the bid to be ready, and afterward, the investor needs to click “Activate” to include the bid in the bidding queue.

Once the bid has been filled, the amount will be shown in the “Available for Withdrawal”' window. The investor then needs to click withdraw and pay a fee to transfer the asset back to their Terra wallet.

*Kujira Orca home page demo. Source:* *Kujira Litepaper*

There are three important things to remember when placing the bid:

1. If the investor is not using KUJI (the native token of Kujira) to pay for the withdrawal fee, they should always place a premium (discount) percentage larger than 1%, as there is a network fee of 2 UST and a 1% commission fee. If using KUJI, the commission is only 0.5%.

2. If there are multiple bids at different discounted rates, the investor should activate them all at once to save network fees.

3. The bids are filled equally and proportionally between everyone bidding at the same discounted rate. There is no first-come, first-serve advantage or larger bids that get a filled-first advantage. The only sequence in which the bids are filled is based on the discounted rate — i.e., the lower-discount pool gets filled first.

The mechanism of evenly distributing liquidation assets among each bidder ensures the fairest allocation to everyone. Ryan Park, co-builder of Anchor Protocol, said in an interview about Orca:

“By evenly distributing the proceeds of liquidations amongst a greater majority, collateral isn’t going into a centralised point but back into the hands of other users. The implications are staggering and quite frankly, I don’t think enough attention has been given to just how big this is.”

The example below shows that when there is a 100,000 UST liquidation to be executed, the 1% discount pool (61,000 UST in total) is filled first and the pool is fully emptied. The remaining 39,000 UST is subsequently passed onto the 2% discount pool to fill the bids.

Each wallet in each pool receives a proportion of the allocated liquidation amount based on the size of their total bidding offer in the pool. It is a completely fair distribution with no priority given to the quickest clicker or the largest bidder.

*Example of 100,000 UST liquidation in 1% and 2% pools.*

Identifying the best time to buy

*Figure1: Number of liquidated borrowers vs. ETH price. Source:* *Kujira Orca,* Flipside Crypto

As shown in Figure 1 and Figure 2, the best time to bid is when there is a dramatic drop in collateral asset price and many borrowers’ LTV goes below the 60% maximum level.

This creates an increase in the number of liquidations (blue and purple line in Figure 1) and also the supply of liquidation assets on the platform (blue and purple bar in Figure 2).

*Figure 2: Liquidated amount in USD vs. LUNA price.* *Source:* *Kujira Orca*, Flipside Crypto

The worst case scenario — in terms of number of liquidated borrowers — coincides with the time when bLUNA and bETH prices dropped significantly. The liquidation amount also spiked in early December 2021 and early January 2022 when Ether and LUNA prices breached major support levels as shown in Figure 2.

These sudden rises in liquidation create unique opportunities for investors to purchase bLUNA and bETH at a great discount. As shown in the chart below (Figure 3), in the December LUNA crash, bidders could purchase bLUNA at a 11% to 12% discount on Kujira Orca at the peak.

*Figure 3: bLUNA liquidated amount in USD vs. purchase discount.* *Source:* *Kujira Orca*

Similarly (shown in Figure 4), when Ether price dropped from the $4,600 level to $4,100 on Nov. 16, bidders were able to purchase bETH at a 11% discount at around $3,700.

*Figure 4: bETH liquidated amount in USD vs. purchase discount.* *Source:* *Kujira Orca*

Looking into the average discount bidders received in the past three months, it is very interesting to see most of the liquidations happened in the very high discount group (9 to 10%, or more than 10%) for November and December 2021.

In January 2022, the concentration seems to have moved to the 6% to 7% discount bucket. However, January’s data is incomplete and only available until Jan. 10 at the time of writing. This means the concentration in the 6% to 7% bucket is only a reflection of the drop early in the year and could still change for the rest of the month.

*Discount bucket comparison for the past 3 months — January data is only until Jan.10. Source:* *Kujira Orca*

Traders can earn while they wait

The historical discount data clearly shows that investors can buy bETH and bLUNA at a discount as high as 9% or 10% away from the market price but the bids might take a long time to get filled.

Luckily, there will soon be a way to keep earning interest from UST while waiting for the bids.

Investors can simply deposit UST to Anchor’s Earn and accrue interests at the current rate of 19% APY; and use the aUST token they receive as the IOU token to bid liquidation assets on Kujira Orca. This way, one keeps accruing interest until the bid is filled on Kujira and the aUST is converted to UST for the liquidation purchase.

** Special thanks to Hans from Kujira for providing the data and insights needed to complete the article.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Altcoin Roundup: 3 metrics that traders can use to effectively analyze DeFi tokens

December 10, 2021 Coin Telegraph

Coin Telegraph

DeFi presents a wealth of opportunity for investors, but there are also risks. Here are three metrics investors use to analyze decentralized finance tokens and their associated protocols.

Much to the chagrin of cryptocurrency proponents who call for the immediate mass adoption of blockchain technology, there are many “digital landmines” that exist in the crypto ecosystem such as rug pulls and protocol hacks that can give new users the experience of being lost at sea.

There’s more to investing than just technical analysis and gut feelings. Over the past year, a handful of blockchain analysis platforms launched dashboards with metrics that help provide greater insight into the fundamentals supporting — or the lack thereof — a cryptocurrency project.

Here are three key factors to take into consideration when evaluating whether an altcoin or decentralized finance (DeFi) project is a sound investment.

Check the project’s community and developer activity

One of the basic ways to get a read on a project is to look at the statistics that show the level of activity from the platform’s user base and developer community.

Many of the top protocols in the space offer analytics that track the growth in active users over time. On-chain dashboards like Dune Analytics offer more granular insights into this metric such as the following chart showing the daily new users on the Olympus protocol.

*Olympus daily new users. Source: Dune Analytics*

Other pertinent data points to consider when it comes to evaluating community activity include the average number of active wallets on a daily, weekly and monthly basis. Investors should also look at the number of transactions and volumes transacted on the protocol, as well as social media metrics such as Twitter mentions that can help with gauging investors’ sentiment about a particular project.

Alert systems like Cointelegraph Markets Pro provide up-to-date notifications on a project’s Twitter mention volumes and unusual changes in trading volume that can be an early sign that a cryptocurrency is turning bullish or bearish.

*CT Markets Pro twitter and trading volume dashboard. Source:* *Cointelegraph Markets Pro*

Regarding project development and developer activity, GitHub has been the go-to place for learning about upcoming upgrades, integrations and where the project is in its roadmap.

If a protocol is boasting about “soon to be released” features but showing little ongoing development or commits being submitted, it might be a sign to steer clear until the activity is better aligned with the claims.

On the other hand, spotting an under-the-radar project with steady development activity and a committed user base could be a positive sign.

Look for steady increases in total value locked

A second metric to look at when assessing the overall strength of a project is the sum of all assets deposited on the protocol, otherwise known as the total value locked (TVL).

For example, data from Defi Llama shows that the total value locked on the DeFi protocol DeFiChain (DFI) has been rising lately following a major protocol upgrade, with the TVL hitting new all-time highs on several days so far in December. This signals that momentum and interest in the project are increasing.

*Total value locked on DeFiChain. Source: Defi Llama*

DeFi aggregators like Defi Llama and DappRadar allow users to dive deeper into the data and look at the statistics for different blockchain networks such as the TVL on the Ethereum Network or Binance Smart Chain, as well as by individual projects like Curve and Trader Joe.

Protocols with a higher TVL tend to be more secure and trusted by the community, while projects that rank lower on the list generally carry more risk and tend to have less active communities.

Identify who the majority token holders are

Other factors to take into consideration are the benefits that token hodlers receive for holding and being active in the community. Investors should also look into the manner in which the token was launched and who the dominant token holders currently are.

For example, SushiSwap allows users to stake the native token SUSHI on the platform to receive a portion of the exchange fees generated, whereas Uniswap, the top decentralized exchange (DEX) in DeFi, currently offers no such feature.

While other factors like trading volume and daily users have made Uniswap a legitimate investment for many holders, some traders prefer to hold SUSHI because of its revenue-sharing model and multichain trading capabilities.

On the flip side, caution is warranted when excessive yields are offered for low liquidity, anonymously-run protocols with little community activity because this can be the perfect setup for catastrophic losses. In DeFi, these are called rug pulls, and typically they occur after a large amount of money has been deposited onto smart contracts controlled by a single anonymous party.

Examining the token distribution for the protocol, as well as keeping an eye on the percentage of tokens allocated to the developers and founders vs. the tokens held by the community can give some useful signal on whether a platform could fall victim to a rug pull or the whimsy of mercenary capital.

If most of the available supply is held by the creators and backers, there is always going to be a chance that these tokens will later be sold at market rate if or when early investors choose to exit their position.

Want more information about trading and investing in crypto markets?

TerraUSD (UST) adoption backs LUNA’s ascension to a new all-time high
Binance CEO reveals one key factor for token listings
DeFi: Who, what and how to regulate in a borderless, code-governed world?
Animoca Brands' treasury increased in value by 5X over two months
3 reasons why DeFiChain (DFI) price has gained 60% in December

Traders know not to ‘go long’ when this classic trading pattern shows up

September 4, 2021 Coin Telegraph

Coin Telegraph

Investors watch trading volume and other momentum indicators alongside descending channel patterns to better gauge when to open and close trades.

Buying an asset in a downtrend can be a risky maneuver because most investors struggle to spot reversals and as the trend deepens traders take on deep losses. In instances like these, being able to spot descending channel patterns can help traders avoid buying in a bearish trend.

A “descending channel,” also known as a “bearish price channel” is formed by drawing two downward trendlines, parallel to each other, which confine the price action of the asset.

Descending channel basics

In a downtrend, the price action forms a series of lower highs and lower lows. A descending channel is drawn by joining the lower highs and the lower lows using parallel trendlines. The main trendline is drawn first where two or more lower highs are connected. Then a parallel line, also called the channel line, is drawn connecting the lower lows.

The price action inside a descending channel continues to move south as bears sell on any relief rallies to the main trendline.

*Descending channel pattern. Source:* *TradingView*

The asset in the chart above is in a downtrend, forming lower highs and lower lows. The main trendline is drawn by joining two lower highs (marked as ellipses) while the parallel channel line is drawn by joining the two reaction lows.

When the price reaches the channel line, bulls believe that the price has become attractive and they buy, but the bears are in no mood to allow the bulls to have their way. They sell when the price reaches the main trendline and the trend remains down.

The trading inside the channel is usually random but bound between the two parallel lines. A break below the channel indicates that the bearish momentum has picked up and that could result in a spike down.

Conversely, a breakout of the descending channel suggests a possible change in trend. Sometimes these breakouts result in a new uptrend, but on other occasions the price action forms a range before resuming the downtrend.

Descending channel breakouts

*THETA/USDT daily chart. Source:* *TradingView*

The chart above shows THETA token in a descending channel where the main trendline is formed by joining the two lower highs made on April 16 and May 9. The parallel line drawn from the reaction low on April 18 forms the channel line.

As seen above, the price action is largely caged between these two lines. The bulls pushed the price above the channel on June 17 but could not sustain the higher levels. The bears again quickly pulled the price back into the channel, trapping the aggressive bulls.

There were a few spikes below the channel line but the long tails on the candlesticks show that bulls used these dips to buy. This shows how the lines act as strong support and resistance.

Finally, the price broke above the channel on July 24 and after a minor consolidation, the recovery continued. This confirmed a legitimate breakout, indicating a possible trend change.

*XMR/USDT daily chart. Source:* *TradingView*

Monero (XMR) topped out on June 23, 2019, and then started a downtrend. The main trendline of the channel was formed by connecting the lower highs on July 8, 2019, and Aug. 8, 2019, while the channel line was drawn from the low on July 16, 2019. The XMR/USDT pair continued to trade inside the channel until Jan. 4, 2020.

The bulls pushed and closed the price above the channel on Jan. 5, 2020. This signaled a possible change in trend. The target objective can be arrived at by adding the height of the channel to the breakout level.

In the above case, the depth of the channel was $31.50. Adding this to the breakout level at $51.80, gave a target objective of $83.30. The pair easily exceeded the pattern target and turned down from $96.90 on Feb. 15, 2020.

This suggests that traders should use the target as a guide but decide on closing the position after analyzing other supportive indicators and patterns.

Descending channel breakdowns

*LUNA/USDT daily chart. Source:* *TradingView*

Terra’s LUNA token topped out at $22.40 on March 21. Thereafter, it started trading inside a descending channel pattern. The bears pulled the price below the channel line on April 18 but they could not sustain the lower levels. The bulls pushed the price back into the channel on April 23 and trapped the aggressive bears.

The sellers again broke below the channel line on May 19. Attempts by the bulls to push the price back into the channel failed on May 20 and May 21, confirming a valid breakdown. The pattern target of the breakdown was $5.10 and the LUNA/USDT pair bottomed out at $3.91.

Take care to not mix up bull flags and descending channels

*BTC/USDT daily chart. Source:* *TradingView*

Bitcoin (BTC) rallied sharply from $17,572.33 on Dec. 11, 2020 to $41,950 on Jan. 8, 2021. Subsequently, the price corrected inside two parallel lines, which was a bullish flag pattern but could have been easily mistaken for a descending channel.

Thomas Bulkowski, author of the book Encyclopedia of Chart Patterns, says when a pattern is less than three weeks long, it is a flag, but longer than that can be considered as a channel.

In the above example, the correction lasted for just over three weeks and the price resumed its up-move after breaking out of the flag.

Traders use this classic trading pattern to determine when to ‘buy the dip’

September 2, 2021 Coin Telegraph

Coin Telegraph

Ascending channels provide a steady signal on the strength of an uptrend and the optimal levels to open positions during a pullback.

Traders use various technical analysis tools to identify emerging trends and profitably trade that direction. One popular trend-defining pattern that traders often rely on is called the price channel.

An ‘ascending channel’ or a “bullish price channel” is formed by drawing parallel lines between the perceived support and resistance levels that an asset trades between on candlestick charts.

Ascending channel basics

An ascending channel is formed when the price action can be contained within two upward sloping parallel lines. First, the main trendline is drawn by joining the two reaction lows. Then a parallel line is drawn by connecting two reaction highs. This line is called the channel line.

The main trendline is the support area from where the price rebounds and the channel line acts as the resistance from where the price turns down. Generally, the price oscillates between these two lines. As the price continues to rally inside the channel, the ascending channel is considered bullish.

*Ascending channel pattern. Source:* *TradingView*

In the chart above, the two reaction lows (marked as ellipses) can be joined to form the main trendline. Ideally, for the channel line, two points are needed but for early identification of a channel a parallel line with just one reaction high can also be drawn.

As seen above, the price rebounds off the main trendline and turns down from the channel line. This means that traders buy near the main trendline and sell when the price reaches the channel line. The price action inside the channel could be random and it does not follow any set pattern.

As the price continues to rise inside the channel, it shows that the trend is bullish. Traders use corrections to the main trendline to buy because it offers a low-risk entry opportunity.

A breakout of the channel signals a pick-up in bullish momentum, while a break below the channel indicates a possible change in trend.

A break below the channel does not always result in a downtrend because sometimes, the price remains range-bound for a few days and then resumes the uptrend.

Ascending channel breakouts

*FTT/USDT daily chart. Source:* *TradingView*

The chart of FTX Token (FTT) shows an ascending channel where the main trendline was drawn by joining the two reaction lows. A parallel line from the reaction highs was used to draw the channel line.

As shown in the chart above, the price largely remained inside the channel from December 2019 to mid-December 2020. Corrections near or to the main trendline could have been used as a low-risk buying opportunity by keeping a close stop-loss.

Usually, a breakout of the channel indicates that the bullish momentum has picked up but in this case, the breakouts turned out to be bull traps on two occasions. The first close above the channel line on Aug. 30, 2020, returned inside the channel on Sep. 3, 2020.

Another close above the channel on Nov. 30, 2020, failed to attract buyers at higher levels and the price re-entered the channel on Dec. 1, 2020. This shows that there is no certainty in trading, hence traders should always use a stop-loss to protect their positions.

Finally, on the third attempt, the price broke out of the channel on Dec. 16, 2020, and the bulls defended the retest of the breakout level between Dec. 20 to Dec. 24. This meant that the previous resistance had flipped to support and the bullish momentum was about to pick up.

A breakout from an ascending channel, if sustained, shows the pick-up in momentum. That usually results in a stronger rally. The target objective can be calculated by adding the height of the channel to the breakout level.

In the above case, the height of the channel is $1.15. Adding that to the breakout level at $4.70 gives a target objective at $5.85.

However, the rally turned vertical and quickly reached $10.10 on Jan. 7, 2021. This shows that the target objective should only be used as a guide and other supporting indicators should be looked at before closing the position.

Ascending channel breakdowns

The FTT/USDT pair again formed an ascending channel and the price rose from about $20 to $63.10 inside the channel. After the sharp rally, the price broke below the channel on May 17. The bulls tried to push the price back into the channel on May 18 but failed.

This attracted strong selling and the pair started a downtrend. The depth of the channel is $14.90 and the breakdown happened at $50.56. Subtracting the depth of the channel from the breakdown level gives a target objective at $35.66.

However, the downtrend continued and the pair hit $21.89 on June 26. This shows that traders should turn cautious when the price breaks down from the channel.

Not all breakdowns result in a prolonged downtrend

In the above example, Bitcoin (BTC) traded inside an ascending channel from April 2020 to early-June, 2020. The price broke below the main trendline of the channel on June 11, 2020, but the BTC/USDT pair did not start a downtrend.

Instead, the price traded inside a range for a few days and then resumed its uptrend. This shows how a break below the channel does not always result in a downtrend. Traders should watch other supporting indicators and the price action before turning bearish.

Key takeaways

An ascending channel hints at the early stages of a stronger uptrend and it offers an opportunity for traders to buy on dips to the main trendline.

A breakout of the channel usually indicates a pick-up in momentum, resulting in a sharp rally. It is usually better to wait for a successful retest of the breakout level to establish fresh positions because sometimes a breakout turns out to be a bull trap.

When the price breaks below the channel, it is a sign that the uptrend has ended but that does not always result in a downtrend. Sometimes, the price trades in a range after breaking below the channel and then as volume picks up the asset begins a new up-move.

Traders should use the ascending channel in conjunction with other technical tools to add further insight to their buy and sell decisions.

Pro traders know it’s time to range trade when this classic pattern shows up

August 17, 2021 Coin Telegraph

Coin Telegraph

Traders analyze bearish and bullish rectangles to spot trend changes and range trade stocks and cryptocurrencies.

A bull trend is formed when demand exceeds supply and a bear trend occurs when sellers overpower the buyers. When the bulls and bears hold their ground without budging, it results in the formation of a trading range.

Sometimes, this leads to the formation of a rectangle pattern, which can also be described as a consolidation zone or a congestion zone. Bearish and bullish rectangles are generally considered to be a continuation pattern but on many occasions, they act as a reversal pattern that signals the completion of a major top or bottom.

Before diving in to learn more about the bullish and bearish rectangle patterns, let’s first discuss how to identify them.

Basics of the rectangle pattern

A rectangle is formed when an asset forms at least two comparable tops and two bottoms that are almost at the same level. The two parallel lines can be used to join the high and the low points, forming the resistance and support lines of the rectangle.

The duration of the rectangle could range from a few weeks to several months and if this time is shorter than three weeks it is considered a flag. Typically, the longer an asset spends in consolidation, the larger is the eventual breakout or breakdown from it.

Bullish rectangle pattern

As shown above, the asset is in an uptrend but after the rally, some bulls took profits and this created the first reaction high. After the price corrects, several dip buyers jump in and arrest the decline, which forms the first trough.

As demand exceeds supply, the asset attempts to resume its up-move but when the price nears the previous reaction high, traders book profits again. Joining these two high points with a straight line forms the resistance of the rectangle. When the price turns down, buyers defend the earlier reaction low and this forms the support.

It is difficult to predict the direction of the breakout beforehand and the price could trade between the support and the resistance for a few weeks or even months. For this reason, it is better to wait for the price to escape the rectangle before turning bullish or bearish.

In the above example, the price breaks out of the resistance of the range as demand exceeds supply. This could result in the resumption of the uptrend.

Bearish rectangle pattern

As shown in the above example, the asset is in a downtrend but when the price reaches a level deemed as undervalued by traders, dip buyers absorb the supply and form a reaction low. Bulls then attempt to reverse the direction but the sentiment is still negative and traders sell on rallies, forming the reaction high.

Traders again buy the dip when the price reaches the first reaction low but the bears stall the recovery near the earlier reaction high. Thereafter, the price gets stuck between the parallel lines, forming a rectangle.

The bearish rectangle pattern completes when the price breaks and closes below the support of the range. This generally results in the resumption of the downtrend.

A bullish continuation rectangle pattern

THETA had been in an uptrend before hitting resistance near $0.80 on Sep. 30, 2020. On the downside, buyers stepped in and arrested the correction near $0.55. Thereafter, the price remained stuck between these two levels until Dec. 15, 2020.

The THETA/USDT pair broke above the rectangle on Dec. 16, 2020, which indicated that the bulls had overpowered the bears. This signaled the resumption of the uptrend.

To arrive at the target objective of the breakout from the rectangle pattern, calculate the height of the rectangle. In the above case, the height is $0.25. Add this value to the breakout level, which is $0.80 in the above example. That gives the target objective at $1.05.

After a long consolidation, when the uptrend resumes, it may overshoot the target by a huge margin as is the case above. Traders can use the target as a reference point but the decision to close or hold the trade should be taken after considering the strength of the trend and signals from other indicators.

The same processes apply to bearish rectangles as shown below.

*LTC/USDT daily chart. Source:* *TradingView*

Litecoin (LTC) had been in a strong downtrend, dropping from $184.98 on May 6, 2018, to $73.22 on June 24, 2018. The buyers stepped in at this level and attempted to form a bottom but the bears were in no mood to relent. They stalled the recovery at $90 on July 3, 2018. Thereafter, the LTC/USDT pair remained range-bound between these two levels until Aug. 6, 2018.

The bears reasserted their supremacy and pulled the price below the rectangle on Aug. 7, 2018. This resumed the downtrend.

The target objective following the breakdown from a bearish rectangle is calculated by deducting the height of the rectangle from the breakdown point. In the above case, the height of the rectangle is $17. Deducting it from the breakdown level at $73 presents a target objective at $56.

The rectangle as a reversal pattern

*ETH/USDT daily chart. Source:* *TradingView*

Ether (ETH) topped out at $1,440 in January 2018 and started a strong downtrend, which reached $81.79 in December 2018. This level attracted strong buying from the bulls and the ETH/USDT pair made a sharp recovery. However, bears stalled the recovery near $300 in June 2019. Thereafter, the pair remained stuck between these two levels until July 24, 2020.

The bulls pushed the price above the rectangle on July 25, 2020, which suggested the start of a new uptrend. The bears tried to pull the price back below the breakout level at $300 but failed. This showed that the sentiment had turned positive and traders were buying the dips. The pair resumed its uptrend in November 2020.

Although the pattern target of the breakout from the rectangle was only $518.21, the pair rose to an all-time high at $4,372.72 in May.

Key takeaways

The rectangle pattern is a useful tool because it can act both as a continuation pattern and a reversal pattern. If the rectangle is large, traders may buy near the support and sell near the resistance.

To benefit from the rectangle and avoid getting whipsawed, traders can wait for the price to break and sustain above or below the pattern before establishing positions.

The target objective should only be used as a guide because when the price breaks out of a long rectangle it tends to overshoot the target objective by a huge margin.

Pro traders look for this classic pattern to spot Bitcoin price reversals

July 31, 2021 Coin Telegraph

Coin Telegraph

Crypto and stock traders view the inverse head-and-shoulders pattern as an early signal that a bullish trend reversal is in the making.

Every trader aims to buy low and sell high, but only a few are able to muster the courage to go against the herd and purchase when the downtrend reverses direction.

When prices are falling, the sentiment is negative and fear is at extreme levels, but it's at times like these that the inverse head and shoulders (IHS) pattern can appear.

The (IHS) pattern is similar in construction to the regular H&S top pattern, but the formation is inverted. On completion, the (IHS) pattern signals an end of the downtrend and the start of a new uptrend.

Inverse head and shoulders basics

The (IHS) pattern is a reversal setup that forms after a downtrend. It has a head, a left shoulder and a right shoulder that are upside down and placed below a neckline. A breakout and close above the neckline completes the setup, indicating that the downtrend has reversed.

*Head-and-shoulders bottom pattern. Source:* *TradingView*

As shown above, the asset is in a downtrend but after a significant decline, value buyers believe the price has reached attractive levels and will start bottom fishing. When demand exceeds supply, the asset forms the first trough from the left shoulder and the price starts a relief rally.

In a downtrend, traders sell on rallies. The bears sell aggressively after the pullback and the price dips below the first trough, making a lower low. However, bears are unable to capitalize on this weakness and resume the downtrend. The bulls buy this dip and start a relief rally, forming the head of the pattern. As the price nears the previous peak where the rally had stalled, the bears again step in.

That starts the decline, culminating in the formation of the third trough, which is arrested almost in line with the first trough as buyers anticipate a turnaround and purchase aggressively. This forms the right shoulder of the setup. The price turns up and this time, the bulls manage to push the price above the neckline, completing the pattern.

The neckline thereafter becomes the new floor as traders buy the dip to this support. This signals the start of a new uptrend.

Identifying a new uptrend with the (IHS) pattern

Bitcoin (BTC) had been in a downtrend since forming a local top at $13,970 on June 26, 2019. The buyers stepped in and arrested the decline in the $7,000 to $6,500 support zone, forming the left shoulder of the (IHS) pattern. This started a relief rally that pushed the price to $10,450. At this level, short-term bulls booked profits and bears initiated short positions, aiming to resume the downtrend.

Aggressive selling broke the support at $6,500 and the Bitcoin/Tether (USDT) pair plunged to $3,782.13 on March 13, 2020. The bulls viewed this fall as a buying opportunity and that started a strong relief rally, which reached close to $10,450. This second trough formed the head of the setup.

The right shoulder was shallow because the selling pressure was reduced and bulls did not wait for a deeper correction to buy. Finally, the bulls pushed the price above the neckline on July 27, completing the (IHS) pattern.

The bears tried to trap the bulls and they pulled the price back to the neckline. Although the price dipped just below the neckline, traders did not allow the pair to sustain below $10,000. This suggested a change in sentiment. The bullish momentum picked up as buyers pushed the price above $12,500.

How to calculate the pattern target of a IHS setup

To calculate the minimum target objective of the (IHS) pattern, calculate the depth from the neckline to the lowest point, forming the head. In the above example, the neckline is around $10,450, and subtracting the lowest point at $3,782.13 gives a depth of $6,667.87.

This value is then added to the breakout level, which in the above example, is near $10,550. This gives a target objective at $17,217.87. When a trend changes from down to up, it may fall short or exceed the target objective. Therefore, traders should use the target as a guide and not dump their positions just because the level has been reached.

Patience pays o because sometimes the pattern fails

No pattern succeeds at every breakout and traders should wait for the setup to complete before initiating the trades. Sometimes, the pattern structure forms but the breakout does not happen. Traders who preempt the completion of the pattern and initiate trades get trapped.

*LINK/USDT daily chart. Source:* *TradingView*

For example, Chainlink’s LINK topped out at $4.58 on June 29, 2019, and started a correction. The buyers attempted to stall the decline in the $2.20 to $2.00 zone. This formed an (IHS) pattern with a head and two shoulders as can be seen in the chart above.

Although the price reached the neckline on Aug. 19, 2019, the buyers could not push the price above it. Due to this, the pattern did not complete and the buy signal did not trigger.

The LINK/USDT pair turned down from the neckline and broke below the head of the setup at $1.96, invalidating the pattern. This trapped traders who may have purchased in anticipation of a trend reversal.

Key takeaways

The (IHS) pattern could be a useful tool for traders to jump on a new uptrend as it is getting started. There are a few important points to remember while using this setup.

Traders should wait for the pattern to complete, which happens after the price breaks and closes above the neckline, before initiating any long positions. A breakout of the neckline, which is on above-average volume, is more likely to result in a new uptrend compared to a breakout that happens on low volumes.

When a trend reverses, it generally continues for a long time. Therefore, traders should not be in a hurry to dump positions only because the pattern target has been met. At other times, the pattern completes but quickly reverses direction and the price plummets. Traders should closely watch the other indicators and price action before squaring up a position.

This classic trading pattern signaled that Bitcoin price had hit a top

July 25, 2021 Coin Telegraph

Bitcoin Price

In technical analysis, traders interpret the head and shoulders formation as a strong sign that a trend reversal is in process.

Traders tend to focus too much on timing the right entry to a trade, but very few focus on developing a strategy for exiting positions. If one sells too early, sizable gains are left on the table and if the position is held for too long, the markets quickly snatch back the profits. Therefore, it is necessary to identify and close a trade as soon as the trend starts to reverse.

One classical setup that is considered reliable in spotting a trend reversal is the head-and-shoulders (H&S) pattern. On the longer timeframes, the H&S pattern does not form often, but when it does, traders should take note and act accordingly.

Let’s look at a few ways to identify the H&S pattern and when to act on it.

Head-and-shoulders basics

The H&S pattern forms after a bull phase and indicates that a reversal may be around the corner. As the name indicates, the formation consists of a head, a left shoulder, a right shoulder, and a distinct neckline. When the pattern completes, the trend usually reverses direction.

*Head-and-shoulders top pattern. Source:* *TradingView*

The above image shows the structure of an H&S pattern. Before the formation of the setup, the asset is in an uptrend. At the peak where the left shoulder forms, traders book profits and this results in a decline. This forms the first trough but it is not yet a strong enough signal to provoke a trend change.

Lower levels again attract buying because the trend is still bullish and buyers manage to push the price above the left shoulder, but they are not able to sustain the uptrend.

Profit-booking by the bulls and shorting by counter-trend traders pull the price down, which finds support near the previous trough. Joining these two troughs forms the neckline of the setup.

As the price rebounds off the neckline, the bulls make one more attempt to resume the uptrend but as the price reaches the height close to the left shoulder, profit-booking sets in and the rally fizzles out.

This lower peak forms the right shoulder and is usually in line with the left shoulder. The up-move reverses and the selling picks up momentum. Finally, the bears succeed in pulling the price below the neckline. This completes the bearish pattern and the trend reverses from bullish to bearish.

Spotting trend reversals with the H&S pattern

Bitcoin (BTC) started a strong up-move after breaking out at $20,000 in December 2020. The BTC/USDT pair hit a local peak at $61,844 on March 13 and the price corrected, forming a trough on March 25. This local peak was the left shoulder.

The bulls considered the dip as a buying opportunity because the trend was still up. Aggressive buying then pushed the price above $61,844 and the pair hit a new all-time high at $64,854 on April 14. This level attracted selling, which pulled the price down to form the second trough on April 25. The middle peak, higher than the other peaks, formed the head.

Another attempt by the bulls to resume the uptrend failed on May 10. This formed the right shoulder and the ensuing correction broke below the neckline of the pattern. The breakdown and close below the neckline on May 15 completed this bearish setup.

Sometimes, after the breakdown, the price retests the breakdown level from the neckline but when the momentum is strong the retest may not happen, an example which is shown in the chart above.

To calculate the pattern target of this setup, determine the distance from the neckline to the top of the head. In this case, the value is $15,150. This distance is then subtracted from the breakdown point on the neckline to arrive at the minimum target objective.

In the above example, the breakdown happened close to $48,000. This projected a pattern target at $32,850. This figure should be used as a guide because sometimes the decline exceeds the target, and in other scenarios the down move ends without reaching the target objective.

Head-and-shoulders sometimes fail

Sometimes traders jump the gun and take counter-trend positions before the price breaks below the neckline of the developing H&S formation. Other times, the break below the neckline does not see follow-up selling and the price climbs back above the neckline. These instances may lead to failed setup, trapping the aggressive bears who are forced to cover their positions and this results in a short squeeze.

*ADA/USDT daily chart. Source:* *TradingView*

Cardano (ADA) started an uptrend from the $0.10 level on Nov. 20, 2020. The uptrend hit resistance in the $0.35 to $0.40 zone in January and a H&S pattern started developing. The price dipped to the neckline on Jan. 27, but the bears could not sink and close the ADA/USDT pair below the support.

When the price rebounded off the neckline on Jan. 28, it was a signal that the sentiment remained bullish. There was a minor hiccup on Jan. 30 and 31 when bears attempted to stall the up-move near the right shoulder but sustained buying from the bulls pushed the price above the head on Feb. 1. This break above the head of the pattern invalidated the setup.

When a bearish setup fails, it catches several aggressive sellers on the wrong foot. This results in a short squeeze and propels the price higher. The same thing happened in the above example and the pair soared in February.

Key takeaways

The H&S pattern is considered a reliable reversal pattern but there are some important points to bear in mind.

A downward sloping or flat neckline is considered to be a more reliable pattern compared to an upsloping neckline. Traders should wait for the price to break down and close below the neckline before initiating trades. Pre-empting the setup could result in losses because a failed bearish pattern could result in a strong rally.

The pattern targets should only be used as a guide because sometimes the price may overshoot and continue the down move and at other times it may reverse direction before reaching the target objective.

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