Trident Trading System #TTS

We come back with a theoretical article about the Trident Trading System #TTS, to enrich our knowledge of technical analysis.

The TTS is a tool used to identify a theoretical objective of where the price will go. It is therefore particularly useful, after having identified the direction of the trend, to understand where a take profit could potentially be expected.

It is based on tracing four points, the theoretical P4 objective to be identified and the knowledge of further three points P1, P2, P3.

An example figure is shown below:

Image 1 : representation of the four points of the TTS

Basically the three known points are that of the previous wave (see Elliott’s article on the waves) and the goal is where the next wave will be positioned.

The TTS formula suggests, in the event of an uptrend, that P4 is calculated as follows:

P4 = P2 + P3-P1

With a view to reaching P4 as a relative maximum, it is suggested to open long positions at:

ENTRY PRICE = P3 + (P2-P1) / 4

So you have to wait before figuring out if from P3 it actually takes place to a bullish movement.

To be kept as “control level” the following:

CRITICAL PRICE = (P3 + P4) / 2

Where we check that the trend is really going in the desired direction.

Specular considerations should be made for bearish trends.

References

  • Achille Fornasini, “Mercati finanziari: scelta e gestione di operazioni speculative – I metodi e i sistemi della moderna Analisi Tecnica a supporto delle decisioni operative”, 1th edizione del 1996, ETAS
  • Wikipedia

Elliott’s wave

In this chapter we will talk about Elliott’s waves and how they could help us understand price trends .

Elliott waves support the principle that the market is cyclical and can be divided into waves. The two main waves are the impulsive one, where the price increases substantially, and the corrective wave called ZigZag in which the price decreases. Each of these two waves can then be then decomposed into smaller waves.

Taking for example the impulsive wave and numbering the alternation of points of maximum and minimum relative to the bullish waves, and instead marking with letters the points of maximum and minimum relative in the Bearish wave, we have the following waves:

WAVE 1: go up to 1 then 2,3,4,5

WAVE 2: I go down to a then b, c (in downtrend)

WAVE 3: go up to 1 then 2,3,4,5

WAVE 4: I go down to a then b, c (donntrand)

WAVE 5: I go up to 1 then 2,3,4,5

Image 1: representation of Elliot waves

Then we will have the corrective wave that is drawn with the same principle.

What is then difficult is to be able to correctly identify the waves on the price chart, also positioning on the correct timeframe.

Below is an example of a 12345 impulsive wave, still in training, on the #ETH chart:

Image 2 : tradingview – eth – example of wave 12345 still in formation

From this theory also derive some corrective patterns as can be seen in image 3 :

Image 3 : representation of corrective patterns derived from Elliot waves

We have already seen some of these patterns in previous articles but without going into the details of the underlying theory.

References

  1. Images: image1 and image3 taken from google images
  2. Achille Fornasini, “Financial markets: choice and management of speculative operations – Methods and systems of modern Technical Analysis to support operational decisions”, 1st edition of 1996, ETAS

#RisktoReward, what is it? How do you apply to #Crypto?

What is risk to Reward? We will talk about it in this article, examining how to apply it to the world of cryptocurrencies.

The risk to reward, simplifying, is the relationship between the risk that runs if a transaction goes into loss and the gain that can be obtained in case it succeeds. Wanting to give a simple example, if I invest € 10, I expect a profit of € 3 and the possible loss is € 1, then I have a Risk to Reward ratio of 1: 3.

The ratio of 1: 3 is usually the one recommended for trading , this is because many operations may not be successful, so those with positive results must cover losses and also generate a profit.

How does this Risk to Reward apply? In trading it consists in setting stop loss orders to limit any losses and, if all goes well, make a sales order to make a profit take.

In cryptocurrency trading, setting a stop loss becomes more difficult because there may be more factors to evaluate, such as:

  • High volatility : often stop loss jump, to make a correct use it becomes necessary to follow the market more frequently and update them several times throughout the day to prevent them from mistakenly clicking;
  • Quotation of new crypts on famous exchanges : a new quoted crypto, for example on binance, could have an explosion of gain as it fell suddenly. Trad give these new crypts increases risks, but also gains;

Very often the whole is translated with the technique of holding, that is to maintain the crypts even if in great loss, in the hope that in the long run until the end the prices go back. A technique therefore completely in opposition to the setting of stop loss. Here the risk to reward acquires a different interpretation: selling the risk of losing the gains of a possible ascent.Although as an interpretation it would be very tight in the professional field, for private savers it can have its meaning.

The holding company, in some cases, is dictated by a lack of time to follow the trend of the crypt in a frequent manner.

A possible middle way between the holding and the stop loss can be another: have a well balanced Coin portfolio and follow the trend by manually replacing or lightening the position on those Coin that are making less or are at a loss. In this case the Risk to Reward must be applied manually and it is advisable to have a good self-control: I do not have a stop loss set on a precise threshold but manually apply a soft threshold within which to alert me, watch the price trend and case sell.

Bollinger bands

Bollinger bands are an indicator of price volatility, that is, they indicate whether prices in a given period are subject to major changes or not.

In high volatility, it can be used to identify the formation of a significant price change, whereas low volatility identifies a moment of lateralization.

Bollinger bands also give us an operational signal, in fact when they are violated they also give us an overbought (violation of the upper band) or oversold (violation of the lower band) operating signal.

It is calculated as follows (source wikipedia):

To calculate the Bollinger bands, first use a moving average of G days (often 20) to which the value of the standard deviation multiplied by a given F factor (often around 2) is added or subtracted .

The upper band is then obtained by adding the standard deviation to the moving average F times. The central band (if you want to view it) is given by the moving average. The lower band is calculated by subtracting from the moving average F times the standard deviation.

On cryptocurrencies we recommend the standard parameters:

  • Period: 20
  • calculated on: closing price;
  • Standard Deviation 2;

In image 1 we can see an example on the BTC chart:

Image 1: Tradingview – bollinger bands on btc – 1 day time frame

In image 1 we can see signs of oversold and overbought marked in black.Circled in green, however, a false signal: the price after arriving oversold continued to fall instead of rising.

As with the other indicators and oscillators, it is therefore advisable to obtain feedback on prices and volumes before carrying out any operation.

References:

  1. Wikipedia
  2. Achille Fornasini, “Financial markets: choice and management of speculative operations – Methods and systems of modern Technical Analysis to support operational decisions”, 1st edition of 1996, ETAS

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is one of the most important overbought / oversolded oscillators. Compared to the simple use of averages is much more responsive and allows us to understand in a more timely manner where prices will go.

The operational signals occur when the value of the RSI exceeds the minimum or maximum preset level, that is:

  • If we exceed the maximum level we are overbought : this suggests that the price could start to fall;
  • If we exceed the minimum level we are oversold : this, on the contrary, suggests that the price may start to rise;

It should be noted that these are suggestions that must then be reflected in the prices: it may indeed be that the price remains for a long time in a phase of overbought / oversold.

It is calculated as follows (source Wikipedia):

RSI = (100 * U) / (U + D) where 
U = average of the upward closing differences of X elements; 
D = mean of the absolute value of the closing down differences of X elements;

The parameters that we suggest to use with cryptocurrencies are as follows:

  • Period: 5
  • Minimum level: 30
  • Masism level: 70

NB: these are not the standard values ​​usually used for this oscillator, but for cryptocurrencies, whose prices evolve very quickly, we found ourselves well with these values ​​to have a more reactive oscillator;

In case of very low timeframe it is recommended to lower to period 2.

The period is trivially the number of units (the X of the formula) on which the averages are calculated. For example if we are on timeframe 4h and the period is 5 we take into account 5 elements of the 4h chart.

In image 1 we can see an example of the RSI used on the BTC / EUR chart with a 1 day timeframe:

Image 1: TradingView – RSI on BTC / EUR chart with 1 day timeframe

It should be noted that the minimum and maximum points of the graph often coincide with the value of the RSI. However, seeing it in the past is very simple, to interpret it while it is formed requires instead to find a feedback on prices and to place the appropriate stop loss / stop buy.

References:

  1. Achille Fornasini, “Mercati finanziari: scelta e gestione di operazioni speculative – I metodi e i sistemi della moderna Analisi Tecnica a supporto delle decisioni operative”, 1th edizione del 1996, ETAS
  2. Wikipedia