With the ever-increasing use of virtual currency and its volatility, cryptocurrencies are being adopted across the world for various transactions. Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. The last time we give you a brief introduction to the types of orders. In this article, we will give you the basics introduction of what is the most important rule in chart analysis， so you may have a deeper understanding of it.
What are failed signals
A failed signal is among the most reliable of all chart signals. When a market fails to follow through in the direction of a chart signal, it very strongly suggests the possibility of a significant move in the opposite direction.
Such price action is consistent with the market’s rising just enough to activate stop ordconsistenters lying beyond the boundary of the range, but uncovering no additional buying support after the breakout—an indication of a very weak underlying technical picture. In effect, the immediate failure of the apparent buy signal can be viewed as a strong indication the market should be sold.
Now that we have established the critical importance of failed signals, the following sections detail various types of failed signals, along with guidelines as to their interpretation and trading implications.
What is bull and bear traps
A bull trap signal would be invalidated if the market returned to the breakout high. Similarly, a bear trap signal would be invalidated if the market returned to the breakout low.
More sensitive conditions could be used to invalidate bull or bear trap signals once the market has moved sufficiently in the direction of the signal or a specified amount of time has elapsed. An example of such a condition would be the return of prices to the opposite boundary of consolidation once a strong price confirmation signal was received.
For example in the case of a bull trap, a retconfirmationurn to the top of the consolidation after prices broke to below the low end of the consolidation.
An example of a more sensitive combined price/time invalidation signal would be the return of prices to the median of a consolidation the initial price confirmation point for bull and bear trap signals at any time four or more weeks after a strong price confirmation was received.
The more sensitive the selected invalidation condition, the smaller the loss on an incorrect call of a bull or bear trap, but the greater the chance that a correct trade will be abandoned prematurely.
If the selected invalidation condition does not occur, a trade implemented on a bull or bear trap signal would be held until a price objective or other trade liquidation condition was met or until there was evidence of an opposite direction trend reversal.
Thanks for your time, after reading this article, you may have a deeper understanding of what is the most important rule in chart analysis? It was an honor to share the experience of cryptocurrency derivatives trading with you. In the next time, we will discuss the chart patterns. For more information, please follow all of our newest articles on Bybit.
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