3.20 Advanced Chart Analysis Techniques

Point & Figure charting: alternative methods of presenting data

Point & Figure (P&F) charting is an advanced method of technical analysis that differs significantly from traditional candlestick or bar charts. The main feature of a P&F chart is its focus on price movements, ignoring time and trading volume. This allows traders to get an alternative perspective on the market, which often catches significant price movements while ignoring smaller fluctuations.

 

Definition and Construction of a Point & Figure Chart

The P&F chart consists of two types of characters:

• X (column X): represents an increase in price.

• O (column O): represents a decrease in price.

Unlike traditional charts, where price is represented according to time (usually in the form of candles or bars), on a P&F chart each column or row represents a specific price change. The value of this change, called the "step" (box size), is set by the trader. For example, if a trader sets the box size to $10 for stock XYZ, column X will be drawn only if the price increases by at least $10, and column O will appear only if the price decreases by at least $10.

 

 

Advantages of Point & Figure Chart

1. Elimination of market noise: Point & Figure (P&F) chart focuses on significant price movements, eliminating short-term price fluctuations. This makes it easier for traders to identify major market trend directions. Traditional candlestick or bar charts often contain a lot of market noise, which can mislead traders or cause them to overreact to short-term price fluctuations. A P&F chart helps avoid such situations by focusing on price movements that are large enough to change the current trend.

2. Clarity of trading signals: Signals generated on the P&F chart are clearer and easier to understand than on traditional charts. Major patterns such as double tops, double bottoms or triangles are clearly visible, making it easier for traders to quickly identify potential trading signals. In addition, the P&F chart allows traders to focus on important support and resistance levels, which can be crucial for trading decisions.

3. Simplicity of analysis: Point & Figure chart analysis is relatively simple and intuitive, which makes it attractive to traders who prefer simplicity in market analysis. Traditional charts often feature many indicators and trendlines, which can overwhelm novice traders. A P&F chart reduces this complexity by focusing on basic X and O columns that represent significant price movements. The simplicity of the analysis also allows you to quickly identify key areas on the chart, which is invaluable in a dynamic market environment.

The Point & Figure chart offers traders many advantages, including the elimination of market noise, clarity of trading signals and simplicity of analysis. These advantages make it a valuable tool in any trader's arsenal, regardless of their level of experience. Beginner traders can quickly learn the basics of P&F analysis and put them into practice to improve the effectiveness of their investment decisions.

 

Implementing a Point & Figure Chart

Determining the Box Size

Determining the appropriate step value (box size) is a key element when implementing a Point & Figure (P&F) chart. The box size determines the minimum amount of price change that will be included in the chart. The larger the box size, the less detail is included on the chart, but trading signals are more certain and require larger price changes to be recorded. In contrast, a smaller box size allows finer price movements to be taken into account, which can be useful in more volatile markets, but can also generate more false trading signals.

Choosing the right box size depends on the nature of the market and the trader's preferences and strategies. It is necessary to take into account the type of financial instrument and the period of analysis. For assets with high volatility, a smaller box size may be more appropriate to capture more significant price movements, while for more stable instruments, a larger box size may be preferred to filter out smaller price fluctuations.

Filters and confirmations

To increase the effectiveness of a Point & Figure chart-based strategy, traders often use various filters and confirmations. Here are some of the most commonly used:

1. Trend lines: Traders can draw trend lines on a P&F chart to identify the direction of the main trend and potential turning points. Trend lines can be helpful in identifying key support and resistance levels.

2. Analysis of technical indicators: Technical indicators, such as RSI, MACD or others, can be used to confirm signals generated by the P&F chart. For example, when a P&F chart shows a double peak formation, a trader can use the RSI indicator to see if the market is overbought, which can confirm a potential sell signal.

3. Chart patterns: Formation patterns, such as triangles, rectangles or heads and shoulders, can also be used as confirmations of trading signals on a P&F chart. These patterns can provide additional clues about future price movements.

The use of filters and confirmations allows traders to increase the accuracy of their Point & Figure chart-based trading strategies. The combination of different methods can help eliminate false signals and improve the effectiveness of trading decisions. However, it is important to balance the complexity of the analysis with simplicity, so that you are not overwhelmed by too many indicators or filters, which could complicate your trading decisions.

 

Examples of Point & Figure Chart Applications

Identifying trends

Point & Figure (P&F) charting is a useful tool for identifying long-term market trends. By eliminating the market noise that is typical of traditional charts, P&F focuses only on significant price movements. This allows traders to better understand the direction of the market without being disturbed by short-term price fluctuations.

Traders analyzing a P&F chart can identify major trend lines, which are represented by a series of consecutive "X's" or "O's" (depending on the direction of price movement). An upward trend is represented by a series of "X's" that go up, while a downward trend is represented by a series of "O's" that go down. Trend lines can be drawn on the P&F chart, allowing traders to identify key support and resistance levels and predict future price movements.

Generating buy and sell signals

The P&F chart generates buy and sell signals based on specific patterns that are easy to recognize and interpret. Some of the most common patterns on the P&F chart are:

1. Double peaks: The formation of double peaks on the P&F chart indicates the market's attempt to reach two similar maxima, which may suggest the end of the uptrend and a potential point to open a short (sell) position.

2. Double bottoms: "Double bottoms" formation on the P&F chart indicates the market's attempt to reach two similar minima, which may suggest the end of the downtrend and a potential point to open a long (buy) position.

3. Triangle patterns: A triangle on the P&F chart can indicate a decreasing range of price fluctuations, which is typical of consolidating markets. A breakout from a triangle formation on the P&F chart can provide a strong trading signal.

Each of these patterns has its own interpretive rules that traders can use to make investment decisions. It is important to understand that the patterns on a P&F chart are not interpreted like the patterns on traditional candlestick or bar charts, which requires specialized knowledge and experience.

Using a Point & Figure chart takes time and practice to perfectly understand its functions and interpret signals. However, once mastered, this technique can be an effective tool in the hands of a trader to help identify trends, generate trading signals and improve the effectiveness of investment decisions. Beginnertraders should learn the basics of this technique and practice using it before implementing it in real trading.

 

Ichimoku-comprehensive trend analysis

Introduction to Ichimoku

Ichimoku Kinko Hyo, also known as the Ichimoku Cloud, is an advanced technical indicator that provides comprehensive trend, support and resistance analysis and generates trading signals in financial markets, including the cryptocurrency market. Developed by Japanese journalist Goichi Hosoda in the 1930s, the Ichimoku technique quickly gained popularity for its versatility and effectiveness in analyzing markets.

Construction of Ichimoku

Ichimoku consists of several elements that together form a comprehensive system of technical analysis:

1. Kumo (Cloud): This is the central and most recognizable element of the Ichimoku Cloud. The Kumo represents future and current resistance and price support. It consists of two lines:

   • Senkou Span A: The average between the Base Line (Kijun) and the Conversion Line (Tenkan), moved forward a certain number of periods.

   • Senkou Span B: The average of the highest and lowest points of the last 52 sessions, moved forward a certain number of periods.

2. Kijun Sen (Baseline): Kijun Sen is a line that represents the arithmetic average of the highest and lowest points of the last 26 sessions, moved forward 26 sessions. It is also an important indicator of support and resistance levels.

3. Tenkan Sen (Conversion Line): Tenkan Sen is the arithmetic average of the highest and lowest points of the last 9 sessions, moved forward 26 sessions. It is an indicator of the short-term trend.

4. Chikou Span (Delayed Line): Chikou Span is the closing price moved back 26 sessions. It is used to confirm trading signals by analyzing the relationship between its current value and the closing price 26 sessions ago.

 

Application of Ichimoku - trend analysis

1 Kumo (Cloud) as support or resistance

The Kumo, or cloud, is one of the key elements of the Ichimoku Cloud, which helps identify the direction of the main trend in the cryptocurrency market:

• Uptrend: When the price is above the Kumo, the cloud acts as support. This means that the overall trend is considered to be upward. Traders look for confirmation of buy signals when the price crosses the Kumo from bottom to top.

• Downward trend: When the price is below the Kumo, the cloud acts as resistance. This is a signal that the overall trend is downward. Traders consider opening a short position when the price crosses the Kumo from top to bottom.

2 Analyzing the relationship between the Kumo and the price

In addition to the position of the price itself relative to the Kumo, it is also important to analyze the relationship between the price and the constituent lines of the cloud:

• Senkou Span A and Senkou Span B: Senkou Span A (the line drawn by the average between Kijun Sen and Tenkan Sen) and Senkou Span B (the line drawn by the average of the highest and lowest points of the last 52 sessions) help determine the width and direction of the Kumo. Ichimoku also takes into account the forward movement of these lines, which allows traders to forecast potential support and resistance levels in the future.

3 Confirmation of the trend by other Ichimoku elements

• Kijun Sen and Tenkan Sen: These lines serve as indicators of the short-term and medium-term trend. Their mutual position and position relative to the Kumo can confirm the strength of the main trend detected by the cloud.

• Chikou Span: The Chikou Span's lagging line, which is the closing price moved back 26 sessions, helps confirm signals generated by the Kumo. Its position relative to past price can also provide additional clues to trend strength.

Practical application

• Confirmation of trading signals: Traders use Ichimoku to confirm trading signals generated by other technical indicators or strategies, especially when the price and other Ichimoku lines agree on the market direction.

• Identifying trend changes: A change in the position of the price relative to the Kumo and component lines can indicate a change in trend in the cryptocurrency market, which is important for both long-term and short-term strategies.

Ichimoku Cloud, with its versatility and ability to identify both upward and downward trends, is an invaluable tool for traders who are looking for deeper analysis of the cryptocurrency market.
 

Application of Ichimoku - trading signals

Ichimoku Kinko Hyo, known as Ichimoku Cloud, generates a variety of trading signals in financial markets, including the cryptocurrency market. Here is a detailed discussion of the trading signals generated by this advanced technical indicator:

1. Kumo Breakout Signal

• Description: This signal occurs when the price crosses the cloud (Kumo) from one side to the other. This intersection may indicate a change in the direction of the trend or confirmation of an existing trend.

• Interpretation:

  • Upper Kumo Intersection: When the price crosses the Kumo from bottom to top, this signals a potential buy signal or strengthening of the uptrend.

  • Lower Kumo Intersection: When the price crosses the Kumo from top to bottom, this can signal a potential sell signal or strengthening of the downtrend.

• Confirmation: Confirmation of the signal can be obtained by analyzing other Ichimoku elements, such as the position of the Senkou Span A and B and the Tenkan Sen and Kijun Sen lines in relation to the Kumo.

2 Chikou Span Cross signal

• Description: This signal occurs when the Chikou Span line (delayed line) crosses the past price.

• Interpretation:

  • Intersection up: When the Chikou Span crosses the price from bottom to top, this may signal a potential buy signal.

  • Intersection down: When the Chikou Span crosses the price from top to bottom, this may signal a potential sell signal.

• Confirmation: It is important to confirm this signal by analyzing the other Ichimoku components and the market context.

3 Kijun Sen and Tenkan Sen Cross Signal.

• Description: This signal appears when the Kijun Sen (standard line) and Tenkan Sen (conversion line) lines cross each other.

• Interpretation:

  • Intersection up: When Tenkan Sen crosses Kijun Sen from bottom to top, it may be an upward signal.

  • Intersection down: When Tenkan Sen crosses Kijun Sen from top to bottom, this may be a downward signal.

• Confirmation: Confirmation of a signal requires analysis of the remaining Ichimoku elements and potential support and resistance levels defined by the Kumo.

4 Kumo Twist Signals

• Description: This signal occurs when the component lines of the cloud (Senkou Span A and Senkou Span B) cross each other or change their position.

• Interpretation:

  • Bullish Kumo Twist: When Senkou Span A crosses Senkou Span B from bottom to top, it may signal a change in trend to upward.

  • Bearish Kumo Twist: When Senkou Span A crosses Senkou Span B from top to bottom, it may signal a change in trend to a downtrend.

• Confirmation: This signal requires confirmation by other Ichimoku elements and market analysis to avoid false signals.

Practical application

• Traders use the above signals to generate signals for entering and exiting positions in the cryptocurrency market.

• It is important to use signal confirmations by other technical indicators or price analysis to increase the effectiveness of trading strategies.

• Ichimoku Cloud is often used by both short-term and long-term traders due to its ability to identify long-term trends and confirm shorter-term price movements.

Ichimoku Kinko Hyo, with its unique structure and ability to generate a variety of trading signals, is a valuable  tool in the arsenal of any trader dealing with financial markets, including the cryptocurrency market.
 

Application of Ichimoku - support and resistance analysis

Ichimoku Kinko Hyo, known as Ichimoku Cloud, not only identifies the trend and generates trading signals, but is also an effective tool for analyzing support and resistance levels in the cryptocurrency market. lets take a closer look at some of its elements: 

1. Kumo (Cloud) as support and resistance levels

• Description: The Kumo (cloud) is one of the main components of the Ichimoku Cloud and acts as a dynamic support and resistance level on the chart. It consists of two lines: Senkou Span A (forward shifting line) and Senkou Span B (forward shifting line).

• Interpretation:

  • When the price is above the Kumo, the Kumo acts as a support level, suggesting that the trend is upward and the price has the potential to rise before meeting resistance.

  • When the price is below the Kumo, the Kumo acts as a resistance level, suggesting that the trend is downward and the price may encounter resistance before continuing to decline.

• Thickness of Kumo: The thicker the cloud (Kumo), the stronger the support or resistance level.

2 Senkou Span A and Senkou Span B as forward shifting levels.

• Description: Senkou Span A (forward shift line A) and Senkou Span B (forward shift line B) are calculated based on the average of the maximum and minimum values for earlier periods.

• Interpretation:

  • When Senkou Span A is above Senkou Span B: This signals that the trend is upward, with Senkou Span A acting as the first support level and Senkou Span B as the second.

  • When Senkou Span A is below Senkou Span B: This signals that the trend is downward, with Senkou Span A acting as the first resistance level and Senkou Span B as the second.

• Interpretation of trend direction and strength: The distance between Senkou Span A and B can also be used to assess the strength of the current trend. The greater the distance, the stronger the trend.

3. Chikou Span (Delayed Line) as confirmation of support and resistance

• Description: Chikou Span is a delayed line, which is simply the closing price moved backwards by a certain number of periods.

• Interpretation:

  • Price Intersection: When the Chikou Span crosses past price, it can indicate a potential support or resistance level in the past.

  • Horizontal Levels: Analyzing Chikou Span horizontal levels can help identify key support and resistance levels on the chart.

4. creating support and resistance zones

• Description: By analyzing the Kumo, Senkou Span and Chikou Span, traders can create support and resistance zones on the chart, allowing them to more accurately identify potential areas where the price can go through changes in direction.

• Application in trading strategies:

  • Traders can use these levels to set stop loss and take profit levels.

  • The ability to identify key levels that may be relevant to trading decisions, for example, when deciding whether to open or close a position.

Practical application

• Support and resistance analysis using Ichimoku Cloud allows traders to better understand the price structure and potential market directions.

• Kumo and Ichimoku components are used in both short-term and long-term trading strategies in the cryptocurrency market.

• Supporting trading decisions by confirming signals generated by other technical indicators and contextual analysis of the market.

Ichimoku Kinko Hyo, with its advanced structure and support and resistance analysis capabilities, is a powerful tool for traders who are looking for more advanced technical analysis methods in the cryptocurrency market.
 

Advantages of Ichimoku Cloud

• Comprehensive trend analysis: Ichimoku Cloud provides traders with a broad perspective on the markets, enabling them to analyze trends, support and resistance, and generate trading signals with a single indicator.

• Clarity of trading signals: The signals generated by Ichimoku Cloud are usually clear and easy to interpret, making it easier for traders to make trading decisions.

• Versatility: It can be used on different time intervals, from short-term to long-term, making it useful for traders with different trading strategies.

Disadvantages of Ichimoku Cloud

• Complexity of interpretation: It can be difficult for novice traders to master all the elements and interpret the signals generated by Ichimoku Cloud.

• Requires practice: Taking full advantage of Ichimoku Cloud's potential requires time, experience and practice in analyzing markets.

Ichimoku is an advanced technical analysis tool that offers traders a comprehensive perspective on financial markets, including cryptocurrency markets. Skillful use of all its elements can help traders identify trends, generate trading signals and manage trading risks. However, due to its complexity, it also requires practice and experience to be used effectively in trading practice.

 

Advanced chart analysis techniques - Renko Chart

Introduction to the Renko Chart

The Renko Chart is an advanced technical analysis tool that offers an alternative to traditional candlestick or bar charts. The main difference is the way the data is presented, where the Renko Chart focuses on price movements of a certain magnitude, completely ignoring time and trading volume. This approach eliminates market noise and focuses on significant price movements, which is crucial for traders seeking to identify clear trends.

Main features of the Renko Chart:

1. Chart design:

   • The Renko chart consists of blocks (bricks), which are drawn only if the price exceeds a certain value of price change (box size).

   • If the price moves more than a fixed step up, a green (or X) colored block is drawn. If the price goes down by more than a fixed step, a red (or O) colored block is drawn.

2. Ignoring time:

   • In traditional time charts, each candle or bar represents a specific time interval (e.g. 1 hour, 1 day). The Renko chart ignores this element, meaning that the time between each block is irregular.

3. Elimination of market noise:

   • Because of its focus on significant price movements, the Renko Chart helps eliminate short-term price fluctuations that can confuse traders when analyzing trends.

4. Identification of clear trends:

   • By eliminating market noise, the Renko Chart makes it easier to identify long-term trends. Traders can more easily identify both upward and downward trends, enabling more effective position management.

 

Definition and construction of the Renko Chart

 

The Renko chart is an advanced technical analysis tool that departs from traditional methods of presenting data, such as candlestick or bar charts. It is characterized by a unique method of construction that focuses only on significant price movements, ignoring time and trading volume. This allows traders to gain a clearer perspective on financial markets, eliminating short-term price fluctuations that can confuse trend analysis:

• Renko blocks: On a Renko chart, each "block" (brick) represents a specific price change, called a "step" (box size). Bricks can be drawn only when the price exceeds a certain value of upward or downward movement.

• Box Size: Choosing the right pad size (box size) is crucial for accurate analysis. The bigger the step, the less detail, but the signals are more certain. Traders can adjust the size of the block depending on market analysis and their preferences.

 

Advantages of using the Renko Chart

The use of the Renko chart in technical analysis brings a number of important advantages for traders who are looking for a tool that is more focused on significant price movements than on time or trading volume.

1. Elimination of market noise: The Renko chart helps eliminate short-term price fluctuations, making it easier to identify long-term trends.

2. Clarity of trading signals: The signals generated by the Renko Chart are clearer and easier to understand than those on traditional charts, enabling faster trading decisions.

3. Simplicity of Analysis: Renko Chart analysis is simple and intuitive, making it suitable for traders who prefer simplicity and efficiency in technical analysis.

Practical application of the Renko Chart

The Renko Chart is a unique tool that traders use for various purposes, including identifying trends and generating buy and sell signals in financial markets, including cryptocurrency trading. Here are more details on the practical application of the Renko Chart:

• Identifying trends

The Renko chart is particularly effective in identifying long-term market trends. By eliminating smaller price movements that can introduce noise on traditional time-series charts, traders can more easily spot clear upward patterns (uptrends) and downward patterns (downtrends). Each Renko block, representing a specific amount of price change, is added to the chart only when the price crosses a set level, eliminating market noise and helping to focus on significant price movements.

• Generating buy and sell signals

Renko block patterns are key to generating potential buy or sell signals. For example:

• Changes in direction ( Reversals): When a series of Renko blocks changes direction (e.g., from a series of rising blocks to falling blocks), it may indicate a possible reversal of the market trend. Traders can use such changes as a signal to close current positions or open new ones in line with the new trend.

• Trend continuation: When Renko blocks form a clear series in one direction (e.g., a series of blocks rising after one another), this suggests a continuation of the current market trend. Such patterns can be used by traders as confirmation of the strength of the current trend and a signal to continue current positions or open new ones in line with the trend.

• Use of additional filters and confirmations:To increase the effectiveness of the generated signals on the Renko chart, traders often use additional filters and confirmations, such as:

1. Technical indicators: Analysis of the Renko chart can be enriched with technical indicators such as RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence) or SMA (Simple Moving Average). These indicators can confirm signals generated by Renko block patterns, making trading decisions more confident.

2. Trend lines: Drawing trend lines on the Renko chart helps identify important support and resistance levels, which can be crucial for managing positions and setting stop loss levels.

 

Summary

The Renko chart is an advanced chart analysis technique that eliminates market noise and enables traders to identify clear trends and generate precise trading signals. The use of this tool, however, requires knowledge of its key principles and the appropriate adjustment of the block size to the market being  analysed. It is an ideal tool for traders looking for alternative methods of technical analysis in the cryptocurrency market.