Inferno analysis: technical trading example for WAVES (bullish outlook)

In this piece we’re going to work through an example of charting, giving a little more information on a handful of simple but effective indicators you might use in picking your trades.

Over the last couple of weeks we’ve posted a number of articles on different coins we like, general market overviews, and specific pieces about trading approaches and nuances. One recent post we saw on reddit seemed like a good opportunity to pull all of these together and write a longer worked example for a particular trade. You can find the reddit link here: https://www.reddit.com/r/CryptoMarkets/comments/82oy7c/technical_analysis_on_wavesbtc_expect_moon/ 

We’re going to take a closer look at this chart for several reasons. Firstly, because it seems like a decent piece of technical analysis. Secondly, it keeps things simple and clear (which is probably why it’s good in the first place). Also because we recently posted a generally positive Inferno Analysis on Waves – we like the platform – and because we regularly give a market overview that makes reference to popular and straightforward trading indicators like volume, support and resistance. As ever, we advise you do your own research and don’t merely trade blindly on someone else’s analysis. Everyone makes mistakes – even us.*

Our kind redditor ‘guyjeb’ has already annotated his chart, but we’ll take a closer look.

<Include image: https://i.imgur.com/jTP13KY.png>

This is a nice long-term chart that stretches back over a year to the end of December 2016, not long after Waves first launched. One thing you’ll immediately notice is that the price has declined a lot over the last 7 months. That is partly because BTC has increased in price. As we noted in yesterday’s post, if BTC becomes more valuable against the US dollar, all things being equal alts will fall in value in BTC terms – they are worth less of a more-valuable currency. That’s entirely logical, and very normal for alts in a bitcoin bull run. But WAVES, like most alts, is listed predominantly against BTC and a lot of traders think in BTC, so working with this pair makes sense.

There are three main parts of the image we’ll concentrate on. Firstly, the main chart, with its red and green price candlesticks – each representing one day of trading. Secondly, the volume bars immediately underneath. And finally, the RSI bar at the very bottom. These should all be considered together, but we will look at them individually before coming back to the overall picture they represent.

Price

Firstly, the price part is fairly self-explanatory. Green bar = price increases over the day, Red bar = price falls. As the price moves up and down, there are certain zones in which it spends more time than others. You’ll see that the horizontal line marked ‘key resistance level’ is also the level for ‘local high’. Back between July and October, the price spent lots of time around this area.

That means a lot of WAVES changed hands at this level: lots of traders bought at around 0.001 and a lot sold there. The price is now below 0.001. If you were a buyer, and you haven’t already sold, then there’s a very good chance you won’t sell until the price gets back to this level. (If the price was above 0.001, the reverse would be true. If you’d already sold at 0.001, you might be wary about buying back in higher but would snap up some WAVES if it did come back there.) This is the nature of support and resistance levels. They are zones that, once established, the price will struggle to break – in either direction. The good news is that if price pushes above resistance, it becomes support.

Support/resistance don’t have to be horizontal lines, as you’ll see from the sloping lines on the chart. The one we’re most interested in is the upward-sloping line that connects three local low points stretching right back to the beginning of 2017, when WAVES touched an all-time low of 0.00014 BTC. As time has passed, the number of sellers willing to part with their coins at such low prices has progressively decreased, and they passed their WAVES on to new owners who, for the most part, viewed their buy-in level as a good price – and hence were prepared to wait for higher prices before they sold. Everyone who buys WAVES does so with the intention of selling higher. Consequently, we see the price bouncing off that upward-sloping line. Right now it’s touching it again.

This presents an opportunity, and a risk. If the price bounces off this level, it’s another confirmation of that resistance line and a good indication that price will continue heading up. If it falls through it, the line becomes resistance and may struggle to push back above it.

Volume

Which brings us to the second part of the chart: Volume. Simply, this is how many coins changed hands in any given period of time (in this instance, each day). The bigger the volume bars, the more WAVES were bought and sold, and therefore the more decisive or convincing a certain price movement can be considered. If volume is high and the price moves up, for example, lots of traders agree that the coins were worth buying. 

What we have seen recently is falling price on falling volume. This indicates that a decreasing number of traders believe that these prices are a good point to sell at. In other words, sellers are drying up, and when the last person has sold, there’s only one direction for the price to move. This is one reason for confidence in that upwards-sloping line, and therefore the sense that the current price point (0.00057) represents another low.

RSI

For the sake of brevity and simplicity, we’re going to ignore the other indicators for now, like the Fibonacci lines – though these broadly support the same picture. The last one we’ll look at is RSI, or Relative Strength Index. This is what’s known as a Momentum Indicator, and it measures the speed of any recent change in price. Effectively, what it says is that the faster price moves in any given direction, the more likely it is to reverse again. Slow, steady movements are more sustainable over the long-term than fast ones.

What the RSI at the bottom of the image shows is that WAVES is in oversold territory: traders have sold it fairly hard over the past few weeks, and have likely overdone it – leaving the door open for smarter money to realise there are bargains to be had. Conversely, you can see that back in June it was overbought, at which point the market topped out and started its long decline.

Warning

There are no guarantees in trading, since markets are inherently unpredictable. A piece of unexpected news (like an exchange hack, new regulation, the loss of a key business partner, bitcoin going on a raging bull run, etc) can change things in an instant. And equally, traders may decide a coin that has fallen to a key support level is still overpriced, and keep selling it down to the next support level or beyond. 

What charting and technical tools provide is not guarantees, but information about probabilities and zones of particular interest. They enable smart traders to take a step back from their own emotions about trading and analyse price action (= the emotions of other traders) more objectively, gauging the best points to buy or sell, and how they can minimise their risk and losses.

Conclusion

Taking all this into account, we agree with guyjeb that the complete picture for Waves is looking good. From this chart, you might well accept that the current price is a good entry point. A couple more green candles will add confidence to that assessment. If that turns out to be the case, then a key level to watch on the way up will be that 0.001 zone, where there has been heavy selling in the past.

* For example, recently we thought we had got something wrong, but it turned out we were mistaken. 

------------------------

Red hot news, scorching wit and searing opinion pieces from Crypto Inferno.

Join us on Telegram