Author: Mac , Crypto Trader
Compiled by: Felix, PANews
Technical analysis too complex to understand? Overwhelmed by a multitude of indicators? Mac, a crypto trader with 10 years of experience, believes that trading is "simple at its core" and offers three lessons. Details are below.
Most people overcomplicate trading. As someone who has spent over 10,000 hours watching charts over the past 10 years, this article can save you a lot of time and money: mastering some fundamental knowledge that people seem to often forget will allow you to go far on your trading journey.
Hopefully, after reading this article, you'll learn to quickly determine whether a chart is worth buying within 3 seconds of opening it. This method applies to stocks, commodities, and cryptocurrencies. It's less applicable to forex, but if you're still trading forex, you need to re-evaluate your approach to life regardless.
The problem
Most people click "buy" without even looking at the charts. They hear about a stock in the news. Someone on a forum says a certain cryptocurrency is about to skyrocket. Their friends recommend they buy it. So they buy it.
They held onto these assets for six months, during which time prices merely fluctuated within a range without any improvement, or worse, the assets began to "bleed heavily." They could only sit and watch their money vanish into thin air, unable to understand what had gone wrong.
This is why index funds are so popular. Not because they are the best investment, but because most people, when they open a chart, simply don't know what to look at. So they just give up and buy the S&P 500 (SPY) index directly.
It's not that technical analysis is always 100% correct, because it simply isn't. But trading is all about probability, and as a trader, your job is to do everything you can to increase your odds.
What does it mean to increase the odds of winning? Let me explain it in a way that even a five-year-old can understand.
Rule of thumb:
- An upward trend in the chart indicates a buying opportunity.
- A sideways trend in the chart may indicate that it's not worth buying.
- A chart showing a downward trend = not worth buying
- The chart is turning from a downtrend to an uptrend = it might be a good time to buy.
You don't need any metrics; it all depends on the market structure.
The first thing to do after opening the chart: zoom out. Switch to a weekly chart, or a higher timeframe (if possible). What you want to see is the actual major trend, not the noise on the 1-hour chart.
Second point: Observe the market structure.
What is market structure?
Market Structure Basics
- Charts in an upward trend will continuously reach new highs and new lows.
- A chart in a downtrend will continuously create lower lows and lower highs.
Now, here's the key point. What does a "breakthrough" in market structure mean?
Imagine a candlestick chart showing a steady upward trend, constantly setting new highs and lows, everything going smoothly. Then one day, the price drops and breaks below the most recent "higher low." That low is the breakdown line. This should have been the price level where buyers re-entered the market, but they didn't. Sellers drove the price down directly.
The reverse is also true. The candlestick chart is in a downtrend, constantly making lower highs and lower lows. Then one day, the price breaks through the most recent "lower high." Sellers should have pushed the price down there, but they didn't. Buyers broke through the resistance directly.
This is also a breakthrough in market structure, but this time it's bullish. This could be the start of a reversal.
This is absolutely the most important thing you can learn from this article: when the pattern of highs and lows is broken, it means something is changing.
More practical examples:
PYPL: PayPal Monthly Chart
The PYPL monthly chart is an excellent example of market structure. On the left, a clear upward trend can be seen. The candlestick chart is making higher lows and higher highs, with prices continuing to rise.
At the 2021 peak, a clear breakdown in market structure was visible: the chart stopped making higher highs and higher lows, instead breaking below the "higher low" of six months prior. This "higher low" should have held, but it didn't. Buyers lost control, and sellers took over. This was a clear market structure breakout, indicating we should sell and stay away for the time being. (Downtrend begins)
Fast forward a few years, and even today, the candlestick chart continues to make lower lows. Some will surely say, "PYPL is undervalued, I believe in PYPL." Please, the charts show a completely different picture. If you really want to have faith, you might as well believe in God.
Next, let's look at some more practical examples so you can understand everything and start applying it to your trading.
Coinbase Weekly Chart
Let's take a look at Coinbase's weekly chart.
- On the left, a clear breakout occurred in the market structure (support level breach), resulting in a lower low --> a downtrend began.
- The chart touches a very low point, after which the price may reach a lower high, then consolidate before eventually breaking through that lower high. This is an upward breakout of the market structure, creating the first higher high and confirming the uptrend.
Please note the marked "buy now" positions; understand that you don't need to buy in advance. Buying "later" is fine too. In fact, it's advisable to buy a little later. Buying after an uptrend is confirmed is far better than buying too early and hoping the downtrend will end. I've lost a lot of money before understanding this, so don't make the same mistake.
BTC 2023-2026
Let's take a look at the price of Bitcoin. In this example, you can see a breakout from both bullish and bearish market structures.
In 2023, Bitcoin's price hovered between $15,000 and $20,000, constantly making lower highs and lower lows, leading almost everyone to declare "crypto is dead." Then, the price broke through the previous "lower high" near $25,000 (green arrow in the chart). This breakout changed everything. From then on, it consistently made higher highs and higher lows, surging all the way to $125,000. Notice that you can still make money even if you enter "late." You don't need to buy at the bottom of $15,000; you just need to see a structural reversal around $25,000 to $30,000 and then buy. Even if you're weeks or even months late, you can still profit.
Now look at the right side. Bitcoin's price peaked around $125,000, after which it began forming lower highs. Then the price broke below a "higher low" (red arrow on the chart) near $85,000 to $90,000, and the structure has just been broken downwards. The current price is around $66,000.
Of course, this doesn't mean Bitcoin will fall to zero, but looking at this chart, it's clear the trend has turned bearish. The best-case scenario is a rebound above the breakout level, but until then, tedious sideways trading and agonizing price action will be the main theme (and may even be worse than the current situation).
Let's look at more examples.
Boring charts
Here's a chart that's been stagnant for over five years. It's the same sideways consolidation, with no breakout in the market structure, just boring sideways movement. Never buy a stock with a chart like this; you might as well take your money and bet it all on a dark horse in Las Vegas.
To succeed, please remember the following three points:
"Junk Cryptocurrency"
Lesson One: Don't try to be a hero and "buy the dips." This will waste a lot of your money and energy. If you're in a confirmed downtrend with no rebound potential, the best course of action is to sell, cut your losses, and then look for other opportunities. I used to be one of those people, stubbornly holding onto my positions and watching them plummet for months, simply because I firmly believed "this is the bottom." That wasn't the bottom at all. The charts kept making lower lows, they just refused to acknowledge it. If the structure indicates a downtrend, then it's down. Get out immediately.
Beautiful things will eventually pass away.
Lesson Two: The market will deceive you time and time again. If the market structure has just turned bullish, and you're worried you've bought at the top, I have only one piece of advice: zoom out. Switching to a higher timeframe will help you better control your emotions and avoid making foolish trades due to emotional impulses. Countless times I've panicked on a 4-hour chart, only to zoom out to a weekly chart and realize nothing has changed. The structure is still intact; I was just watching too closely. This is where fundamental analysis comes in handy. If the fundamentals or market narrative support your technical analysis, you're likely making a good trade.
Hynix's bull market
Lesson Three: Entering the market a little late is okay, but don't be ridiculously late. At this point, you might ask: How do I know if I'm too late? Well, the answer is hard to say. It takes years of sifting through candlestick charts to figure it out, and even then, you'll still make mistakes. Technical analysis can only get you this far; you'll go much further if you combine it with news/narrative analysis and fundamental analysis. A good rule of thumb is: if the candlestick chart has already formed 3-4 higher highs and higher lows on a higher timeframe like two weeks or a month, and the price is well above the point of structural reversal, then you've probably missed the optimal entry point. While not always the case, it's highly likely. Instead of chasing the already occurred trend, wait for a pullback to form a "higher low" before entering.
Summarize
- An upward trend in the chart indicates a buying opportunity.
- A sideways trend in the chart may indicate that it's not worth buying.
- A chart showing a downward trend = not worth buying
- The chart is turning from a downtrend to an uptrend = perhaps a buying opportunity.
3 lessons learned:
- Don't try to be a hero and buy at the buy the dips.
- Trust your analysis
- It's okay to arrive a little late, but not too late.
Related reading:Starting with $100, breaking down the three dimensions and five levels of a trader's advancement.
