Don't Be Afraid To Look Around
Here’s a funny thing about Trading that not a lot of people talk about.
And what do I mean by that? I mean that the traders that are able to move the markets or bend them to their will are constantly changing the game on retail traders. They have certain strategies that they employ in an effort to drive prices up or down. We have strategies too. Think yo your own strategies and you will start to see a pattern arise. Some strategies work – regardless of the associated timeframe on the chart while others only work on very specific timeframes.
When analyzing a chart for recent price action, we want to find what timeframe and what levels of Support and Resistance are being RESPECTED. In other words, what are the whales using to Buy and Sell?
So we look to the Daily for any major clues. First, we start with likely the most common indicator on the planet, besides Volume – Moving Averages. We have are pretty standard array as we rifle down the list. (9, 20, 50).
9 = Orange
20 = White
50 = Red
From the Daily, we see that the 9 held Support but only for a little while and we can see the lows were somewhere in between the 9 and 20. So, we switch to the H12.
on the 12-Hour Chart, we see on the 20 EMA what we just saw on the 9 EMA for the Daily. Price sort of ripped through the level without too much respect but at least the lows were much closer to the level of support as opposed to the Daily. Still not great – let’s move to the H6.
Here we go. The H6 is looking far cleaner than the rest and it appears that the 50 EMA is holding Support at the moment. As we look down the recent history, we can see that the 20 EMA did hold 5 times and a 6th time that was pretty sloppy. That is not bad at all.
But Wait - There's More
Without having you sit through hours of Moving Average explanation in what should be considered a Blog Post, we don’t have to stop at the H6. We can look for more confluence from other timeframes and see what else is being respected.
The cool thing about Moving Averages is that 1 specific Moving Average can also be represented on another timeframe but just with a different name and slightly different results.
Consider a 50 Period Moving Average on a 4-Hour Chart is roughly the same as the 200 EMA on the 1-Hour Chart.
In the first picture, we have used the H4 Chart. I tried to capture nearly the same information as far as price action is concerned. The run-up from $45K is the main focus here.
The H4 shows a really good bounce from the 50 EMA during that sloppy H6 20 EMA area we saw earlier. However, this time around the price cut right through the 50 and is now potentially using the backend of the 50 EMA as a retest for Resistance. This would help to tell the story that either the 100 (Blue) or the 200 (Green) would be the next potential area for Support.
But then we move to the H1 Chart. Here we can see that the same sloppy area in the past was actually the 200 EMA on the Hourly and it held really well. But just like the H4 – we ripped right through the 200 EMA this time around but we have found very solid Support on the 300 EMA (Orange). The initial test of the 200 held as resistance but the second test of the 300 held as support. Now we have something to look at.
We can run the Up or Down Scenarios. If the price is to flip the 200 as Support then we look for it to flip the 50 and the 100 and then work it’s way back to the previous high. If the 300 is to fail as Support, we can look to the 385/400 or we can change our timeframes up and see what the next level of support may be.
Of course, we also want to draw our S/R in the way of trendlines and horizontals. Moving Averages are only 1 form of Dynamic Support and Resistance. You can run the same process with 1000 other indicators as well.