Cryptocurrency Exchange - No Trend, No Divergence

Regarding market trends, there is one that is “not to worry about,” which is the three classifications of trends: upward, downward, and consolidation. All trends can be broken down into these three situations. This is a very simple principle, and it is the only reliable foundation for market analysis. Many people tend to ignore the simplest things and focus on those complicated, superficial methods. Whether you are a main force, retail investor, or a market maker, you cannot escape the trends woven from these three classifications.

So, what are upward, downward, and consolidation? Here is a definition. First, it must be clarified that all upward, downward, and consolidation trends are based on certain cycle charts. For example, consolidation on a daily chart, which might be an upward or downward trend on a 30-minute chart. Therefore, a specific chart is the basis for judgment, and the choice of chart is consistent with the trading system mentioned above, related to your capital, personality, and trading style.

Upward: The most recent high point is higher than the previous high point, and the most recent low point is higher than the previous low point.

Downward: The most recent high point is lower than the previous high point, and the most recent low point is lower than the previous low point.

Consolidation: The most recent high point is higher than the previous high point, and the most recent low point is lower than the previous low point; or the most recent high point is lower than the previous high point, and the most recent low point is higher than the previous low point.

The key to operation is not the definition itself but how to fully understand the definition to establish a solid foundation for trading. The difficulty lies in how to grasp the high and low points because they have levels. A high point seen on a 30-minute chart might not be visible on a weekly chart. Therefore, moving averages are necessary to filter, which is the concept of “kiss” mentioned earlier. Only the highs and lows that occur before and after the “kiss” are meaningful.

First, understand how a “kiss” occurs. If a trend cannot break through even the short-term moving average, then the highs and lows during that period are definitely on a lower-level chart and meaningless on the current level. When a trend breaks through the short-term moving average but cannot break through the long-term moving average, it forms a “flying kiss”; when a trend breaks through the long-term moving average and immediately forms a trap, it is a “lip kiss”; when a trend breaks through the long-term moving average and shows certain reversals, it is a “wet kiss.” From this, it is clear that the classification of “kisses” is based on the degree of resistance to the original trend. A “flying kiss” has almost no resistance, the “lip kiss” has moderate strength, and the “wet kiss” indicates sufficient strength, and most reversals start from a “wet kiss.”

There are generally only two types of reversals: one, a “wet kiss” followed by a trap that continues the original trend and then reverses; two, consolidation that forms a reversal by trading time for space.

The second case will not be discussed here for now. The first case’s biggest sign is the so-called “divergence.” It must be emphasized: there is no trend without divergence. Divergence is irrelevant during consolidation, which must be made very clear. Another point to note is that all judgments here relate only to two moving averages and the trend, and are unrelated to any technical indicators.

How to judge “divergence”? First, define a concept called Chan Zhong Shuo Chan trend strength: the area formed by the intersection of short-term and long-term moving averages at the end of the previous “kiss” and the start of the next “kiss.” In two consecutive trends moving in the same direction, when the Chan Zhong Shuo Chan trend strength is weaker than the previous one, divergence is formed.

According to this definition, it is the most reliable method, but the only drawback is that you must wait for the next “kiss” to judge, which means the trend is already somewhat distant from the actual reversal point. How to solve this problem: the first method is to look at a lower-level chart and find the corresponding reversal point using this method. This way, the distance from the actual low point is minimal.

Another method, which requires higher skill, is to define a concept called Chan Zhong Shuo Chan average trend strength: the area formed by the short-term and long-term moving averages at the end of the current and previous “kisses” divided by time. Because this concept is real-time, you can immediately compare the current trend strength with the previous one. If this time it is weaker than last time, divergence is about to form. Then, based on the distance between the short-term and long-term moving averages, if the extension length shortens, it indicates that the true bottom is about to form. Using this method, the actual reversal point can be captured almost simultaneously. However, it has a flaw: slightly higher risk and requires more advanced skills and market intuition.

Purely using a two-moving-average candlestick chart is sufficient to handle the most complex market trends. Of course, if you lack this chart-reading ability, you can refer to technical indicators such as MACD, and the application of various technical indicators will be discussed gradually in the future.

(Note: The upward and downward trends mentioned here are defined by the highs and lows before and after the “kiss,” which is different from the upward and downward trends defined after the central zone. The trend mentioned here may be the consolidation after the central zone is defined later. **$SUNDOG **$DOGS **$U2U **