Recently, Max, our Bybit Ambassador from France, hosted the Bybit Engage topic ‘Multiple Key Indicators Convergence’ in our Telegram group. Let’s take a look at some of the main points that he addressed.
What is convergence?
Convergence in trading to put it simply is a signal that a trend is going to consolidate or reverse, from bullish to bearish, or bearish to bullish. Firstly, let’s look at some key indicators in trading.
Simple Moving Average (SMA) and Exponential Moving Average (EMA)
SMA and EMA are among both the most used, the most consistent and the most reliable indicators of them all. This is because they are simple and relevant data representations of the current status and behavior of the market. The longer the time period, the stronger the signal can be interpreted as being. The most used setup, even though there can be a infinite number of them, is the following:
Low time frames (M1/M5/M15/M30):
- 7/21/50 EMA + 100 SMA
Medium and High time frames (H1/H4/W/M):
- 21/55/100 EMA + 200 SMA
The following examples will be in the H1 timeframe.
Remember, there is no absolute setup for Moving Averages (MAs).
Below you can see that the price reacts pretty strongly to these different MAs. The white zones are the most relevant ones, let’s take a look :
1. After dropping from roughly 14,000 USD, the price tried to break down the 200 SMA. But it failed and bounced back, since it had very strong support.
2. A bit later, the price came down again to test the 200 SMA, and broke it down.
3. The price managed to get back to 200 SMA after some fluctuations. It tested the resistance level, and touched it several times. After being compressed between the 21 EMA and 200 SMA, it broke 200 SMA successfully.
The price fluctuates in a symmetrical triangle between highs and lows. It means that the market is indecisive.
2 scenarios :
- If the price breaks out and closes above the upper side of the triangle, this indicates a bullish signal.
- If it does the opposite and closes below the lower side, this indicates a bearish signal.
As you can see below, there is a small symmetrical triangle inside the bigger one, and it answers to the same rules.
The price is compressed between the upper horizontal line, and the bullish trendline. It means that it’s more likely that the price of the asset will go up.
1 scenario :
- If the price breaks out and closes above the horizontal side, this indicates a bullish signal.
Thirdly, we have the simple indicators known as supports and resistances (S/Rs) When identified, they are very, very powerful indicators.
It usually categorizes as horizontal lines, even though here we use zones, which is more relevant and strong in terms of probability.
The identification of them is an adaptive process. The more reactions you have on a zone, the more it is likely to act as support or resistance.
As you can see below, the circles correspond to the a reaction; whether it’s a price hesitation, or a strong break out in price, up or down.
On the chart, the most powerful zone is 2 because it has more price reactions in/on it, whereas the weaker one is 5, since it has less contact with it.
Keep it mind that we are taking this chart as an example, and we base our zones on the price action that we are actually seeing. It clearly depends on the price history that we don’t see, if there have been similar prices before.
For the fourth part, we cross two of the previous indicators, which are MAs and patterns.
Convergence of indicators
This is the correlation of multiple indicators on the same chart. Just from the previously discussed price reactions with the MAs and patterns, we could see potentially interesting zones and setups to trade.
Now for the interesting part!
In this chart, we cross S/R zones, MAs, and patterns, to determine the best entry points where you could minimize your risk.
Here we are only searching for bearish convergences: as you can see below, there is only one interesting entry zone for a bearish signal.
Why ? Because we see that we are in a resistance zone that seems to be pretty strong not long before the convergence, plus the end of a symmetrical triangle Pattern broken from below, and the MA consolidating right below the price, before being broken (21/55/100)
Also note: when a symmetrical triangle is broken, the golden target for taking profit is at the same distance separating the lowest and highest points of the triangle, as shown on the chart.
Also, we could identify other bearish convergences, a bit weaker than the previous one but still consequent.
They can be called medium bearish convergences.
- Price following downtrend after breaking the 21 and 55 EMA
- Downward consolidation
- Multiple attempts to break the 100 EMA with few candle closes just below it
- Attempts to enter the support zone
- Pretty strong signal (red) not long before price touches the bearish trend line, as well as the 21 EMA
- Convergence of the same indicators, as in 2, plus the lower line of a resistance zone
Next, we could do the same things for bullish convergences!
- Price following up trend and price broke the the 21/55/100 EMA right before and 21 EMA support
- Break of a small symmetrical triangle Pattern to the upside
- Resistance zone entered several times before
- Break of the 21 EMA
- Break of the down trend line
- Attempt to break the resistance zone
- Price broke the the 21/55/100 EMA not long before, so they behave like short term supports
- Price hesitation inside the resistance zone
- Ascending triangle
Finally, you can find here a convergence setup crossing our previous analyses, based on 3 simple indicators (symmetrical triangle, trendline breakout, ascending triangle), as discussed earlier in the article.
Please note that we could not cover all the possible patterns, and other indicator convergences, because there would be too many possibilities to discuss at one time.
We hope you enjoyed this article about the recent Bybit Engage discussion from Max, our French Bybit Ambassador. Stay tuned to our social media for the schedule of our next Bybit Engage discussions and join our Telegram group to take part!
* This article does not represent the views of Bybit. As such, it should be not be seen as trading and financial advice, it is merely an opinion. Trading is done at your own risk.