- Ethereum’s Rally Could Gain Pace If It Clears this RSI Trendline
- Filecoin Logarithmic Channel Caps Gain at $11
- How to take advantage of Crypto Psychological Numbers and how to use them
Ethereum (ETH) gained over 100% from its mid-June low, experiencing the most substantial rally this year. However, one question that is on the mind of everyone is whether this is the beginning of a long-term recovery or we’re just witnessing a dead cat bounce.
On the weekly time frame, ETH is attacking a key RSI trendline, which, if cleared, can signal more gains above the $2,000 psychological level. Basically, the RSI trendline connects the peaks in momentum, and a breakout above is a clear signal of a shift in the market sentiment.
Usually, momentum precedes price, which means that price should follow the lead of the RSI trendline breakout.
However, for a more conservative approach, we can wait for the weekly RSI to break above the 50 mid-level.
What is the RSI Trendline?
The RSI Trendline is a tool that technical analysts use to help identify whether a stock or crypto is overbought or oversold. The RSI is calculated by taking the average of the item’s gains and losses over a certain period of time, and then dividing that number by the average true range. The resulting number will be between 0 and 100. A reading of 70 or above indicates that a item is overbought, and a reading of 30 or below indicates that a item is oversold.
Short Term Resistance
In the short term, ETH has reached a price zone of solid resistance from $1,700 to $1,900. At the same time, the Ethereum price climbed for four consecutive weeks — one of the strongest bull runs so far this year.
While cryptocurrencies have recovered from steep declines in the past, we still need to wait for the above signals to materialize. Usually, the recovery in the cryptocurrency market is tied to the 4-year halving cycle.
For example, the last bear market lasted 2.5 years, while the current bear market length has entered its 10th month.
Filecoin (FIL) is showing a long-term logarithmic channel that has the potential to cap the upside at $11. Since topping out in March 2021 and more recently in September 2021, FLC’s price has been moving inside a descending channel, unable to break above and below the channel’s limits.
The descending channel came into play near the current all-time low of $4.80 back in mid-June, where it provided strong support. In the short-term, the logarithmic channel is also coming into play near the $11 mark.
This was a key factor contributing to the sell off from the $11.37 high.
As long as the FLC price remains within the channel’s boundaries, we can expect negative sentiment to prevail. However, a weekly break and close above the upper descending trendline has the potential to mark a reversal and open the door for a retest of the next key resistance zone between $18 and $20.
What is a Logarithmic trend Channel?
A logarithmic trend channel is a tool that technical analysts use to predict future price movements. It is based on the idea that prices tend to move in a certain way after reaching certain milestones. For example, if the price of a crypto reaches $10, it is likely to go up by a certain amount before reaching $11. This pattern can be used to predict future price movements.
The weekly Relative Strength Index (RSI) continues to stay below the 50 mid-level, signaling bearish momentum. An early sign of a potential reversal can only come once the RSI breaks above the 50 mid-level.
Looking forward, the first significant support level comes at $6.5 followed by $5.0, which if retested have the potential to provide FLC price with another opportunity to bounce.
Have you ever wondered why crypto prices tend to gravitate towards certain levels in the market? Is this a coincidence, or is there something more meaningful behind this price behavior? This can be explained based on the psychology of human behavior that has a bias towards round numbers.
What Are Psychological Levels?
In crypto trading, psychological numbers are key price levels denoted by round numbers like $100, $1,000, $5,000, etc. Typically these price levels attract retail traders and big institutional players alike.
Since all market participants expect a reaction from these levels, it becomes a self-fulfilling prophecy when they are finally tested. As a result, many buy and sell orders are usually clustered around psychological numbers.
The end result is that the market tends to establish areas of support and resistance around psychological numbers.
How to Use Round Numbers?
If the price stalls at a psychological level, it’s more likely to offer an area of support/resistance. However, suppose there is a breakout of a round number. In that case, this can signal a shift in the market sentiment, and the psychological number can change from being a level of resistance to being a level of support and vice-versa.
It is better to use psychological numbers in conjunction with other critical support and resistance levels and technical indicators. When you have multiple technical factors clustering with a psychological number, there is a higher probability that the price will react near these price levels.
Traders can use these round numbers as targets for taking profits or setting stop-loss orders.
Here are some tips on how to take advantage of round numbers in the cryptocurrency market:
- Watch for big moves around round numbers
- Use round numbers as targets for taking profits or setting stop-loss orders
- Be aware that fakeouts can occur at round numbers
- Use other technical indicators along with round numbers to make trading decisions
In summary, psychological numbers can be used as a confluence factor in conjunction with other strategies, price action, and technical tools.
Looking forward: The past few months have been tough for crypto investors. Prices have been volatile and many people have lost money. However, there is light at the end of the tunnel. Psychological numbers can be used to take advantage of the current situation and make profits.