These 7 methods can increase your win rate by 60%. Turning point trading, once learned, allows you to navigate the crypto space like a fish in water; the market will be your 'ATM'!
Turning point trading is one of the most effective trading methods.
Unlike trend trading, it focuses on discovering signals of trend exhaustion, identifying the potential for a change in trend in advance, thereby increasing the likelihood of capturing a new round of trends.
The reliability of turning point trading lies in the fact that if you can correctly identify a turning point, even if you don't enter the market immediately, you can still achieve a good trading price, significantly reducing operational risk.
So, how to correctly identify a turning point?
1. Normal state of rising/falling
The normal state of rising/falling is one of the most commonly used trading methods in classic Dow Theory.
According to Dow Theory, if the lows in a market continue to rise, it is a normal rising trend; if the highs also continue to rise, it is an even more effective signal; conversely, it indicates a normal falling trend.
If during this process, the highs and lows do not continue to create new highs/lows, it indicates that the normal state of rising/falling has ended, likely signaling a change in trend, and the previous low or high may well be a turning point.
2. Three-line reversal
The three-line reversal is a method proposed by trading master Conflas. It is very similar to normality but can identify turning points earlier.
According to the definition of three-line reversals, if the closing prices and opening prices of three or more consecutive candlesticks continue to rise, the lowest price of the earliest among the last three candlesticks is set as the previous low point. If the next candlestick directly breaks through this price, it confirms a peak turning point.
In actual trading, it is common for three consecutive bullish candlesticks to be followed by a rapid bearish candlestick; however, to conform to the three-line reversal, it must be a candlestick that breaks through a preset low point to be valid. (Invalid three-line reversal)
(Effective three-line reversal)
For example, in the diagram below, when the first true three-line reversal appears, it officially initiates a downward trend.
Besides the main force driving the market, it is typically related to data news and black swan events, especially key market expectations and data, which may allow the market to break through key resistance and support easily.
It is worth mentioning that if a change in bar shape occurs during the formation of a three-line reversal, it is often a more effective signal.
For instance, in the diagram below, if the high point is a small bullish candlestick with no upper shadow, and if a subsequent large bearish candlestick simultaneously breaks through three candlesticks, it is a more effective three-line reversal pattern.
3. Long doji turning point
The doji is a very important candlestick signal for predicting tops and bottoms. However, the appearance of a long doji does not necessarily indicate that a turning point has occurred.
Generally, the appearance of a long doji indicates that the operator has shown signs of offloading; however, before completing the offloading, the market may not necessarily continue to decline and might create a false downtrend with partial offloading before pulling up the market again.
There are two scenarios for long dojis.
The first scenario is as shown; if a doji is followed by a small bullish candle, do not immediately short here; instead, observe whether there are signs of further upward movement, as this could indicate a continuation signal.
In the second scenario, if a doji appears and then a large bearish candlestick follows, or if a bearish candlestick forms near the end of the doji's lower shadow, or even a gap-down bearish candlestick, then the position of the doji is an obvious turning point.
Generally, the doji itself carries a nature of choice direction; when a doji appears at a relative peak, if it coincides with key data and news, it will greatly enhance the accuracy of predicting the doji.
4. Large bearish and bullish candles
Generally, a large bearish or bullish candlestick often indicates the main force at work and is likely a breakout signal.
However, in actual trading, there are often buying or selling climaxes. For example, if the market has been rising for a considerable period, but suddenly a large bullish candlestick appears at the peak position.
This may be a breakout signal, but it is more likely that the bulls' chips are nearing exhaustion; thus, they use up their remaining chips for a final push to attract following buyers to drive up the price for offloading. Therefore, the top of this large bullish candlestick is the turning point.
To determine whether a large bullish or bearish candlestick is a buying climax or a selling climax, focus mainly on the next 2-3 candlesticks.
Generally, if a large bullish candlestick appears, and subsequently 1-2 candlesticks engulf the large bullish candlestick partially or entirely, it can be determined as a signal of a peak.
If 1-2 candlesticks only engulf 1/3 or less of the large bullish candlestick, then attention should be paid to whether the support below is reliable, which suggests that the main force has not finished offloading, and the market may maintain a high level of consolidation or even experience a slight rebound. In such cases, entering the market is not advisable as the probabilities of moving up or down are quite large.
If after a large bullish candlestick, a series of small bullish and bearish candlesticks that rise slightly above the high of the large bullish candlestick is formed and confirms support near the high of the large candlestick, it confirms an effective breakout, usually stabilizing and likely continuing to rise; therefore, the top of the large bullish candlestick cannot constitute a turning point.
5. Moving averages
Moving averages reflect the average price level of the market. Generally, the market will oscillate around the moving average, which is also the principle behind many smoothing indicators.
Therefore, if a market continues to operate above the moving average or significantly deviates from the moving average, it indicates an overall strong trend. Once the market breaks below the moving average, a corrective turning point may occur, and when breaking through key support, one can consider entering the market.
Moving averages can also be analyzed using moving average combinations.
Similar to using golden crosses and death crosses for judgment, we can utilize a combination of long-term and short-term moving averages. Generally, if the short-term moving average consistently runs above the long-term moving average, when a death cross forms and the candlestick is pressured below both moving averages, it is an effective sell signal.
It is important to note that golden crosses and death crosses can produce false signals. If both a golden cross and a death cross occur simultaneously but the candlestick does not strengthen or weaken accordingly, it is a signal that requires attention and may likely indicate a continuation.
Generally, if a long-term and short-term moving average forms a golden cross or death cross, and news coincides, it is often an effective signal.
6. Double tops/head and shoulders tops
Double tops and head and shoulders tops are also very classic patterns for identifying turning points.
If after a period of rising, the market begins to fall, tests a price level, and then rebounds slightly below the first peak before falling again and breaking previous support, this is a typical double top pattern.
If after a rebound a new high is created, but then the market falls again to test support and rebounds slightly, and then falls again to break through the support, this is a head and shoulders top.
Double tops and head and shoulders tops are not difficult to understand, but the height of each top conceals other price signals.
First is the double top pattern. In a standard double top pattern, the right peak should be level with the left, and the highest point should be lower than the left.
However, if the right peak is significantly higher than the left, in addition to possibly becoming a head and shoulders top, it is more likely to become a continuation pattern, so caution is advised to avoid missing out.
The head and shoulders top is slightly more complex than the double top, but the principle is quite similar.
Standard head and shoulders pattern, where the right shoulder is level with or preferably slightly lower than the left shoulder.
Additionally, when using head and shoulders tops, it is best to combine with volume analysis. Generally, the volume at the left shoulder is highest, the head is second, and the right shoulder is the lowest, indicating that the market's driving force is gradually weakening. Once the chips are exhausted, a sharp decline often occurs.
In the analysis of head and shoulders tops and double tops, the position of the neckline is crucial. Generally, breaking through the neckline usually indicates trend confirmation. However, in some extreme cases, the market may quickly pull back from below the neckline, break through it, and then rise again. Therefore, we can adopt a strategy of entering the market in batches.
When the market breaks through the neckline and then pulls back to test the neckline resistance, if the neckline resistance is significant, you can consider adding to your position.
7. Position distribution
In addition to the technical analysis mentioned above, position distribution is also a commonly used method for finding turning points.
Generally speaking, if there are too many open orders in the market, it will create very strong resistance and support. Due to active buy and sell orders not being able to absorb the market's pending orders, they often sell off their existing orders, causing the market to move in the opposite direction.
These are some commonly used trading methods for finding turning points. In actual trading, based on turning point analysis, one can better grasp changes in market sentiment, whether capturing a trend or exiting the market, which can be quite helpful.
Novice swing trading methods:
1. Not setting stop-loss or take-profit, holding positions for too long
Stop-loss is something that should be applied to every trade. If you have time, it is also fine to move the stop-loss point, but since this is swing trading—short-term range trading—do not hold the positions for too long. If you let everyone set stop-loss and take-profit points for too long, they will gradually tend to believe that every trade can achieve perfect take-profit, which is unrealistic. Swing trading focuses on profitability, just as investments are based on asset preservation. A successful trading method is determined not by avoiding losses but by controlling the quality of losses; it depends on whether your losses are worth it.
2. Not paying attention to capital management, failing to control position sizes
Swing trading is not necessarily the most profitable investment method, and during periods of market tension, it is advisable to operate with a light position. A heavier position is not advisable; beginners are recommended to start with 1/10 of their position for practice and gradually increase it, but not exceeding 1/2. Many people begin to increase their position size when they see minimal profits from their trades, but in reality, there is not much difference in outcomes between heavy and light positions. This approach is not very cost-effective.
3. Waiting for pullback opportunities
Currently, the digital currency market is a dual-direction market; therefore, compared to other investment markets, the movements in the digital market are more volatile. Positive news, key breakouts, and large transfers can all become forces driving price changes. Thus, trading in digital currencies requires quicker responses. Sometimes when discussing pullbacks, it is because the market is still within a range, but sometimes a pullback signifies the end of a swing, so one must be vigilant and see clearly.
4. T+0 trading mechanism leads to frequent trading
T+0 allows investors to trade all day long, providing many more opportunities for entry; however, the downside is that this trading mechanism increases trading volume and market volatility. In such cases, emotional factors can also be amplified, and after multiple unsatisfactory trades, it is easy to develop a counterproductive mentality, similar to women shopping late at night or buying impulsively after a breakup.
In summary, this is Haiyang's answer to the question of the best way to view short-term indicators in cryptocurrency trading for a few minutes. I hope this article by Haiyang on the most practical swing trading techniques can help those friends who want to engage in short-term trading to quickly master the skills of short-term trading.
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