teaching technically, chapter 7, March 21st
teaching technically, chapter 7, March 21st
Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | Chapter 5 | Chapter 6
In the seventh chapter of notes, I discuss the levels of resistance and support with its characteristics. In the previous chapter, we learned that distribution does not assure the stock will reverse to a decline phase, but the indecisive action offers no exploitable edge to traders. Bear markets make for difficult times in the lives of trend traders. Now, we continue onto different structures.
Definitions
The levels of consolidation when there is a balance in the facilitation of trade are known as support and resistance levels.
Shannon explains several things of note within this chapter, and with this chapter’s information specifically, I’ve tackled the timing of entries into the broader cryptocurrency market. I haven’t quite mastered the exit yet.
One of the ways I can picture Shannon’s explanations of supports and resistances is this.
Betting on the Bounce
Throwing a ball into the air, we observe a peak in its path. Mathematicians might refer to it as the apex of the parabola. As there exists insufficient energy to carry on, we could infer the ball’s met a ‘resistance’ and must travel in the opposite direction, or downwards.
The ball lands on the ground, the Earth, with such force that it rebounds upwards once again. The level that it does not breach and subsequently repels off of makes a support. So on and so forth the bouncing of the ball goes, establishing new levels with each transfer of energy, so to speak.
Note: Tops and bottoms don’t matter. It teaches more to understand and recognize the volume’s flow and direction than to time structures.
How do you recognize things like flow and direction? Shannon helps visualize once again with…
Traffic
As a vehicle enters a rotary, no matter how fast it previously went, it slows down to enter alongside other vehicles. This traffic is akin to the happenings at supports and resistances. Assets seek space, either where demand drives it onward or supply meets the demand and slows it. As price moves within a certain range, the levels it slows into and races off generate a ‘trendless time’ in which direction is hard to gauge.
As we mentioned before, without a definite edge, traders like myself don’t have to enter the fray.
Note: Varying levels of fear and greed are what prevent prices from moving in either direction for too long before prices consolidate.
As the chapters before taught, rather than fancy yourself with pretty patterns, become cold and emotionless as you analyze that emotions drive market participants often to their demise.
The Formation
The following characteristics indicate either structure. Stay vigilant for these scenes to identify opportunities for entry and exit:
- Resistance levels are formed by passive selling (offering size v. selling to the bids) and broken by aggressive buying(buying offers and removing liquidity v. patient bidding)
In short, resistances form by passive selling and break due to aggressive buying.
- Support levels generally form by passive buying and break due to aggressive selling action
Consequently, supports form by the opposite reasons of resistances: passive buying breaking due to aggressive selling.
The Market ‘Members…
It’s said that price has memory. This chapter iterates why that is more than idle talk. Namely, it is the collective memory of participants playing out through the price, on the chart.
The memory makes it common for breakout prices to return to previous resistances upon pulling back and remaining around there, now as a support.
In less words, once broken, support tends to act as resistance. The inverse is also true. Once broken, resistance tends to act as support.
The truth rings loud and clear. I noticed one level we didn’t dare break in previous lows in crypto markets, 20,000 USD, became a hard wall to climb once we sadly fell through the level. I posit that 28,000 USD makes a hard number for people to forget, forging a new support within what more voices are calling for: a bull market.
Bull Market Memories
Shannon captured my character in previous rallying markets well. I soared like an eagle. I flew quite high on delusions of my own success, without truly reckoning or recording my learning. It’s true. Everyone generally wins during an uptrend, so I had not hedged, nor realized profits, or maintained any semblance of strategy.
Maybe if I’d did any hard writing or recording…
Once cannot call the lightning, but those black swans landed around my little moat of confidence. Their foreshadowing didn’t alarm me at first, believing them to be unfounded rumors by haters about LUNA. Their stable crashed, along with confidence, and prices.
I hadn’t been watching good tokens for long enough, nor early enough to participate in their growing valuations. I skimmed some bit at the top, and rode the long way down for most assets. Not anymore.
Picturing New Picks
Alongside the dutiful studying chapters each week, I sniff like a dog out back in the trash, digging for a good score. What’s going to grab the most attention this cycle? What drives the most attention? If you said AI, good. You’re thinking like an alpha miner.
For those unfamiliar with the slang, alpha originates from finance and has come to mean any information with the promise of bearing profit.
For example, the announcement of horizontal integration between ImmutableX and Polygon is alpha. Choosing to trade those two tokens into an uptrend may very well reward you. Retail users will comb old headlines looking for a rationale to pick any token from the top 100. They may even trust ‘fate’, i.e better traders, and launch their capital into simpler ideas like dog coins.
The recent announcement of the Arbitrum airdrop focuses my attention to sticky partnerships, persistent productivity in protocols with governance tokens, and the first notable narrative, liquid ETH staking.
Six months from now, valuations will have ballooned, but those soaring will be the ones today that really make sense. Word of mouth will get to your friends who might eventually text you, “What do I buy?”
If it so happens, send them this now, 6-month old blog post, and say “He’s got some good ideas.”
Post Summary
Resistance and supports can best be understood by bouncing a ball.
The price action going on during these levels can be understood with the traffic analogy.
Opposite actions of aggressive buying and aggressive selling break up resistances and supports, respectively.
Having an idea of what tokens to buy and why, sets you apart from a large portion of so-called market participants. Thus, I investigate narratives. Some include the new Arbitrum ecosystem and ETH liquid staking.