On the fourth episode of DueDEX Connect we are talking with the Cryptomist about using trendlines in conjunction with the relative strength index. Both are essential tools for technical analysis and put together they can deliver even better results.
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DueDEX: Hello traders and welcome to our weekly DueDEX Connect event. Tonight we are taking a look at two of the most common tools traders use for technical analysis - trendlines and the RSI - and how to use them together for best results.
Thank you very much for joining us Cryptomist!
Cryptomist: Thank you very much for hosting me, it is a pleasure.
Q: Could you please give us a bit of an introduction to trendlines? What are they and how are they used?
A: There are many ways and tools for trading. But I believe trendlines are the bread and butter int this field. I’m not aware of even one trader that does not use them. It is a way to identify where the market is going, and finding key levels.
Q: Many thanks. Not all traders draw trendlines in the same way. Do you have any suggestions or special techniques you would like to share with us?
A: I use my trendlines to form triangles. Each triangle has its own destination and story and method in terms of buying and selling. So I like to draw trendlines in order to from triangles. If you look at my charts they’re filled with them!
It’s key to be consistent with trendlines, drawing them wick to wick or candle body to candle body. And you should do this for both support and resistance levels.
This method has worked successfully for me.
Q: How many points do you usually use to draw a trendline that you would feel comfortable with?
A: I like to see at least three touches on support and resistance. Plus, I often wait for confirmation on support (bounce) and resistance (rejection).
Q: Great. Looking at time frames, some traders do not feel comfortable drawing trendlines on short ones. Do you only rely on higher ones?
A: Higher time frames trendlines are very important. You have to remember that at all times, the higher the time frame the stronger the resistance. The only case in which I would draw trendlines on short time frames is for either scalping or to plot an entry based on the higher time frame. I like to start my analysis from 4hour and move higher
Q: Changing topics for a moment, let’s look at the Relative Strength Index (RSI). We had a special episode dedicated to it in the past - check it out here traders - but let’s go through the basics again. Could you please explain to readers here what is the RSI?
A: The relative strength index is an indicator that can be used to identify legitimate breakouts, dumps, fakeouts, and estimate the strength of price movements. You can also use it as a way to identity divergencies, and anticipating movements before they take place.
Q: Thank you very much. So how do you usually use the RSI in conjunction with trendlines? Is there a special technique?
A: Let me give you an example. Let’s suppose we are testing a large resistance trendline on a candle. If we break past it, we could make a lot of money by going long. If it is rejected, we could then make money by shorting. You can anticipate whether it will break if you have a divergence. For instance, as the price reaches resistance, combined with a strong bearish divergence is an indication of rejection incoming and a good short opportunity.
Q: Would you suggest traders draw lines directly on the RSI chart?
A: I would suggest drawing it on candles first. But I also draw directly on RSI. You can draw triangles, support lines, and resistances on Rsi. However, I believe this method is slightly unreliable so the primary focus with lines should be on candles.
Q: Great. What are you looking for specifically when using the RSI in combination with trendlines?
A: As mentioned earlier, I look for bullish or bearish divergences. A support line on candles met with a bullish divergence is a strong buy signal. Resistance met with bearish divergence is a strong short signal.
Q: Perfect, one last question. In your experience, does the RSI movement sometimes anticipate the price? If so, drawing trendlines can help predict when prices will make a move, for instance breaking a trend?
A: In my experience, the RSI cannot predict price as much as direction. Unfortunately, trendlines drawn on the RSI may not identity how far the move will go up in terms of price, but just how it will run until the next trendline. A combined an analysis of the RSI with trendlines drawn on candles is a very effective combination, however.
Thank you once again @cryptomist123. We appreciate you giving DueDEX users an opportunity to learn more about patterns and sharing your experiences. We would also like to thank everyone who joined.
Stay tuned for the next #DueDEXConnect!