Application of Chan Theory in the Crypto Space: How to Scientifically Define Time Levels and Sub-levels
I. Core Principles of Chan Theory Time Levels
The core of the Chan Theory (Chan Zhong Shuo Chan Theory) lies in the 'self-similarity of trends' and 'recursive levels.' In traditional financial markets (such as stocks, futures), time levels are usually divided based on trading days, e.g., daily, weekly, monthly, etc. However, in the cryptocurrency market, since trading occurs 24/7 and is highly volatile, traditional time period divisions may not be entirely applicable. Therefore, we need to redefine a time level system suitable for the crypto space by combining the recursive logic of the Chan Theory.
1.1 The Essence of Chan Theory Levels
In the Chan Theory, 'level' does not simply refer to K-line periods (such as 1 hour, 4 hours, daily, etc.), but rather to the 'structural level' of the trend. For example:
Segment: Composed of at least 5 K-lines, including top types and bottom types. Line Segment: Composed of at least 3 segments, representing a small trend. Center: Composed of at least 3 overlapping segments, representing the balance area of bullish and bearish contention. Trend: Composed of at least 2 same-direction centers, representing a clear upward or downward market.
The true 'level' depends on the growth process of the trend structure, rather than fixed time periods. However, in practice, for ease of analysis, we still use time periods as auxiliary references.
1.2 Recursive Relationships of Time Levels
The Chan Theory emphasizes that 'sub-level trends constitute higher level segments or lines,' so the division of time levels needs to follow a certain recursive logic. Generally, the time span of adjacent levels is about 5~8 times. For example:
The sub-level of the weekly chart is the daily chart (1 week ≈ 5 trading days), the sub-level of the daily chart is the 4-hour chart (1 day = 6 4-hour candles), and the sub-level of the 4-hour chart is the 1-hour chart (4 hours = 4 1-hour candles).
In the crypto space, due to trading continuity, we can adjust time levels more flexibly, but we still need to maintain recursive consistency.
II. Recommended Division of Time Levels in the Crypto Space
Due to the high volatility and continuity of the cryptocurrency market, we need to adjust time levels based on traditional Chan Theory. The following are recommended time frames suitable for mainstream cryptocurrencies like BTC and ETH:
| Main Level | Sub Level | Next Sub Level | Recursive Logic |
| Monthly | Weekly | 3-day | 1 month ≈ 4 weeks ≈ 7 three-day cycles |
| Weekly | 3-day | 12-hour | 1 week ≈ 2 three-day cycles ≈ 14 12-hour candles |
| Daily | 4-hour | 1-hour | 1 day = 6 4-hour candles ≈ 24 1-hour candles |
| 4-hour | 1-hour | 15-minute | 4 hours = 4 1-hour candles ≈ 16 15-minute candles |
| 1-hour | 15-minute | 5-minute | 1 hour = 4 15-minute candles ≈ 12 5-minute candles |
2.1 Why choose these cycles?
Avoid excessive time span jumps
For example, jumping directly from the daily to the 1-hour line (24 times the span) can lead to gaps in analysis. Therefore, we add the 4-hour line as a sub-level of the daily line to make the recursion smoother, adapting to the high volatility of the crypto space.
While traditional markets may use 30 minutes as a sub-level of 1 hour, in the crypto space, fluctuations at the 15-minute or even 5-minute level can form valid segments or lines. This aligns with the '5~8 times' recursive principle of the Chan Theory.
For instance:
Daily (24 hours) → 4-hour (6 times) 4-hour → 1-hour (4 times) 1-hour → 15-minute (4 times)
III. Handling Special Situations in the Crypto Space
3.1 The Impact of the Main Contract Switching Cycle
In the cryptocurrency futures market (such as BTC quarterly contracts), there is a main contract switch every 3 months. Typically, during the delivery week (e.g., the last Friday of March, June, September, December), market volatility intensifies. At this time:
Temporarily adjust time levels: 3 days before the delivery week, the daily chart can be downgraded to 12-hour analysis. Pay attention to changes in open interest: sub-level trends need to be verified with open interest to avoid false breakouts.
3.2 Volatility Correction
The volatility (ATR) of cryptocurrencies is much higher than that of traditional markets. When volatility is abnormally amplified:
Use ATR(14) as a filter: If the current ATR exceeds twice the 30-day average, downgrade the time period (e.g., switch from daily to 12-hour). Avoid entering too early on small levels: for instance, in extreme conditions, a 'divergence' at the 5-minute level may fail, requiring confirmation at the 1-hour level.
3.3 Volume Verification
The Chan Theory emphasizes 'volume-price coordination,' which is especially important in the crypto space:
Sub-level breakthroughs require volume from the main level: for example, a breakthrough at the 4-hour level requires at least a 1.5-fold increase in daily trading volume. A volume decrease during a pullback may be an opportunity: if the daily trend is upward, and the 4-hour pullback shows decreased volume, it may constitute a buying point.
IV. Practical Case Analysis (BTC/USDT)
4.1 Trend Judgments at the Weekly Level
Step 1: Identify segments and lines on the weekly chart (usually formed by 3~5 daily candles). Step 2: Check if the daily level forms a center and recursively verify the effectiveness of the weekly segments. Step 3: If a 'top type + volume' appears on the weekly chart, it may indicate a trend reversal, requiring a switch to the daily or 4-hour chart to find selling points.
4.2 Trading Opportunities at the 4-hour Level
Step 1: On the 4-hour chart, the 1-hour line forms a segment, with 3 segments forming a line. Step 2: If a 'bottom divergence' appears on the 4-hour chart (price makes a new low but MACD or RSI does not), a rebound may occur. Step 3: Combine with volume breakout at the 1-hour level to confirm entry.
4.3 Short-term Operations at the 15-minute Level
Applicable Scenarios: Contract trading, short-term waves. Key Point: The appearance of 'bottom type + volume' at the 5-minute level can be considered a buying point. 15-minute MACD golden cross + 1-minute volume pulse can enhance the credibility of the signal.
V. Dynamic Adjustment Strategies
5.1 Use EMA14 as the boundary for long and short positions
Price > EMA14: Focus on bullish, go long at the main level (e.g., daily), find buying points at the sub-level (4-hour). Price < EMA14: Focus on bearish, go short at the main level, find selling points at the sub-level.
5.2 Low Liquidity Period (UTC 0:00-4:00)
At this time, market trading volume is usually low, making it easy to experience spikes or false breakouts. Response Strategy: Automatically downgrade the time period (e.g., 4-hour → 1-hour analysis).
5.3 Handling After Major Events
As news such as the Federal Reserve's interest rate hikes and ETF approvals emerge, mandatory use of 1-minute/5-minute analysis in the first 4 hours to avoid excessive slippage.
VI. Summary
When applying the Chan Theory in the crypto space, the division of time levels needs to be flexibly adjusted according to market characteristics. Key Points:
Recursiveness is key: sub-level trends constitute higher-level segments or lines, maintaining a 5~8 times time span. Volume-price coordination is essential: sub-level breakthroughs require confirmation by volume from the main level. Dynamic adjustments: during extreme conditions, delivery weeks, or low liquidity periods, the time period can be downgraded.
Ultimately, the successful application of the Chan Theory in the crypto space relies not only on the precise definition of time levels but also on integrating market sentiment, capital flow, and on-chain data (such as net inflow into exchanges) for comprehensive judgment.
