Hello everyone and welcome back. Another season of this learning series has been started and we all are very keen and excited to learn and explore new facts about the crypto world. In this lesson, the professor @dilchamo has taught us about the "Effective trading strategy". This is my homework post.

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Question 1

Define Line charts in your own words and Identify the uses of Line charts:

Line Chart

The Line chart is the graphical representation of the price of the crypto currencies over a specified period of time. This chart has only a single oscillating line which is use to indicate the movement of the price of coin in a specific time period. The closing price of the coin for a specific time period is use to plot the line chart. So we can say that that the Line chart is the graphical representation of the closing price of the asset over a specific period of time. The time period can be in seconds, minutes, hours, etc

The line chart is drawn using the price data of asset on the vertical x-axis and the time on the horizontal x-axis. This chart give us a very clear and noise free representation of the assets price because a single line is use for price representation which filter out the noise generated from the ups and down movement of price.

As compare to the other charts like candlestick chart, bar chart which use the opening price, high price, low price, etc to represent the market structure, The line chart use the closing price of the asset to represent the price movement using a single oscillating line, which make it easy for even beginners to use it in their their trading. Because only the closing price is used, the line chart is very easy to interpret.

As compare to the other price chart like bar chart, candlestick chart, etc, the line chart is very easy to read and simple to understand, so most of the traders prefer this chart to make their important trading decisions in the crypto world. The traders can easily identify the current market condition from the line chart for any time period and then can take the trading decisions in most easiest, simple way and profitable way.

The Japanese candlestick chart use the high, low, opening and closing price of the asset and give us a complete information about the price movement and market structure, but on the other hand, the line chart use only closing price, thus do not give us the wide information but helpful to reduce the noise generated from the price movements.

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Uses Of Line Chart

The Line chart is very popular among the traders and has a variety of the usage.

1- Simple

The line chart is very common among the traders because of its simplicity and easiness. This chart represent the price movement in very easy and simple way. The traders can identify the market trend and price movement

2- Filter out noise

The line chart help to identify the current market trend by filtering out the noise. A single oscillating line is use for representation of the price movement which filter out the noise generated.

3- Identify the Support and Resistance Level

The Line chart is very useful to identify the support and resistance level. Here the closing price of the asset for a give time period is use which shown the price record and indicate the resistance and support areas. This is best to use for large time frames.

4- Price of the assets

This chart is very helpful to identify the price of the asset in a specific time period. The single line is use to represent the price movement. The traders then can easily determine the assets price and can decide whether to enter into the market or this is best spot to exit from the market.

5- Trading opportunities

The Line chart is very useful to take the important trading decisions. The chart highlight a number of the trading opportunities for the traders can help them to trade in profitable way.

6- Combine with other indicator

The line chart can be combined with other indicator like RSI. The effectiveness get enhanced and the more accurate results then produced.

Question 2

How to Identify Support and Resistance levels using Line Charts (Demonstrate with screenshots)

The support and the resistance are the important price levels where the selling pressure and buying pressure is visible and price of the assets is expected to move back to its previous original direction. The buying and selling pressure get generated because of aggregation of the particular sort of the orders at these points/levels. The number of the times, the price reacted around these price levels before is use to determine how strong the support and resistance level is.

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Resistance Level Using Line Chart

The resistance level is an area where the price stop increasing up further, the buying pressure expected to pause and price is expected to bounce back. At this level, the sellers enter into the market and stop price increasing more, a lot of pending selling orders get executed because of which, price start moving in opposite direction and trend get reverse. This is the level where the buying pressure pause, the selling pressure increase which prevent the price to move further in upward direction. Because of consolidation of a large number of selling orders at the resistance level, the price bounce back resulting in trend reversal.

Breaking the resistance level in possible only with large number of the buying orders. When the buying pressure get high, price increase and the bullish movement start. The traders should take the important trading decisions at time of breakout of resistance level.

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The strength of the resistance level depend on the time frame within which the resistance level identified. When the resistance level identified for short time period, it is usually unaffected. But when the resistance level is identified for large time frame, it is more effected.

Support Level Using Line Chart

The support is an area where the price stop decreasing up further, the selling pressure expected to pause and price is expected to bounce back. At this level, the selling pressure get exhausted and the buyers enter into the market and stop price decreasing more, a lot of pending buying orders get executed because of which, price start moving in upward direction and trend get reverse. This is the level where the selling pressure pause, the buying pressure increase which prevent the price to move further in downward direction. Because of consolidation of a large number of buying orders at the support level, the price bounce back resulting in trend reversal.

Breaking the resistance level in possible only with large number of the selling orders. When the selling pressure get high, price decrease and the bearish movement start. The support level get break then. The traders should take the important trading decisions at time of breakout of resistance level.

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The strength of the support level depend on the time frame within which the support level identified. When the support level identified for short time period, it is usually unaffected. But when the resistance level is identified for large time frame, it is more effected.

Question 3

Differentiate between line charts and Candlestick charts. ( Demonstrate with screenshots)

The line chart and the candle stick chart are use for graphical representation of the price of asset. The major difference between these two are as follow;

Price representation

Line Chart

The line chart is use to represent the price of an asset using only a single oscillating line. This line is plotted using only the closing price of the asset for the given time period. The traders can easily understand the line chart. The price structure and movement become more easy to understand by the single oscillating line.

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Candle Stick Chart

The line chart is use to represent the price of an asset using the candles. The candles are in color green and red by default. The green color candles represent the high buying pressure and price move in upward direction in this case. When the red candles are shown, this indicate the high selling pressure and price decrement. The candles are formed using the opening, closing, high and low price of the coin at the given time interval.

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Identification of support and resistance level

Line chart

A single oscillating line is use for representation of data in the line chart. This make it easy to identify the support and resistance level.

Candlestick Chart

The candlesticks are use for representation of the price data in the candlestick chart. These candles are use to represent the support and resistance level. The multiple data is use to represent the price movement in candle stick chart, so a lot of factors are keep into consideration while identifying the support and resistance level. The wick is keep into consideration while identifying the key support and resistance level.

Identification of Trend

Line chart

The line chart use the single oscillating line which is plotted using the closing price of asset for specific time period. It indicate the price moment's directional bias and reduce the noise. The reduction of the noise give us a clear view of the price movement. We can easily identify the trend.

Candlestick Chart

The candle stick chart use the candle sticks for identification of the price movement's directional bias. The noise is not filter out in the candlestick chart thus make it difficult for the traders to predict the price next movement and the market trend. The data representation is not much clear in the candlestick chart. The traders then cannot predict the market more correctly.

Information

Candlestick Chart

The candle stick chart give us more clear information about the price movement. The traders get to know a lot of things about the price of asset within specified time interval.

Line chart

The line chart use only closing price thus cannot give us much information about the asset's price movement.

Noise

Line Chart

The line chart filter out the noise and give a clear representation of the price movement.

Candlestick chart

The candle stick chart consider the high, closing, low and opening price because of which there is relatively high noise in chart representation.

Question 4

Explain the other Suitable indicators that can be used with Line charts. (Demonstrate with screenshots)

The multiple indicators are use in the crypto market for analyzing the market. Different indicator have different usage. The traders use the indicators to analyze the market and to take the important trading decision but sometime, the indicators produce the wrong results because no indicator is 100% accurate. When we combine the indicators, the accuracy get enhanced and the results become more reliable.

RSI and Line Chart

The RSI is very popular and useful indicator which is use in the market to get to know about the market conditions like whether the market is in overbought zone, oversold zone, trend reversal, etc.

This indicator has 100 levels within which, it oscillate. When the RSI move below the 30 level, it indicate that the market is in oversold zone and selling pressure is high. The market price is decreasing and is in bearish trend. At this point, the bullish trend is expected. When the RSI move above the 70 level, it indicate that the market is in overbought zone and buying pressure is high. The market price is increasing and is in bullish trend. At this point, the bearish trend is expected.

This indicator is very popular and use worldwide by the indicator for analyzing the market but it is also not 100% accurate. So it is recommended to use the RSI by combining with other indicators.

This indicator can be combine with line chart for giving the more clear information. The combination of these two will help to confirm the directional bias of the price movement. For this, the market should be in overbought or oversold zone. When the market is in overbought zone, then wait for the price to break the resistance level which will confirm the presence of the buyers. This will push the price upward. When the market is in oversold zone, then wait for the price to break the support level which will confirm the presence of the seller. This will push the price downward.

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In the above chart, the line chart and RSI has been used. The RSI indicate that the market is in overbought and oversold zone. When the resistance and support level break out, the trend got reversed. The directional bias of the price movement is confirmed by the breakout of the resistance and support level.

Question 5

- Prove your Understanding of Bullish and Bearish Trading opportunities using Line charts. (Demonstrate with screenshots)

Trading Opportunities Using Line Chart

The Line chart is easy to read and simple to understand. The traders can analyze the price movement using the line chart easily. Identifying the trading opportunities depend upon the traders capability and abilities. He can identify the trend in line chart more easily and accurately by combining the other indicators with line chart. I have combined the MA crossing 50 and 20 to identify the more trading opportunities.

When we combine the line chart with MA 20 and 50, we need to wait for the price movement cross the MAs, then wait for the MAs cross section, then take the trading decision accordingly.

This indicator use the two MA with different period setting. When the MA 20 cross the MA 50 and move upward, this indicate the bullish trend. This is best buying opportunity. When the MA 50 cross the MA 20 and move upward, this indicate the bearish trend. This is best selling opportunity.

Bearish Scenario

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In the bearish case, the line chart cross the MA(20, 50) and should move downward direction. Then wait for the MA 50 to cross the MA 20 and move upward. This will indicate that the sellers are in pressure and they are pushing the market price downward direction. This confirm the bearish season. Question 5

In the above screen short, the price movement(Line chart) crossed the MA(20,50) and move downward direction. Then the MA 50 crossed to MA 20 and move in upward direction which confirm that the sellers are in control. I placed the stop lose, take profit and then executed the sell order because the market is expected to fall down after this cross section.

Bullish Scenario

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In the bullish case, the line chart cross the MA(20, 50) and should move upward direction. Then wait for the MA 20 to cross the MA 50and move upward. This will indicate that the buyers are in pressure and they are pushing the market price upward direction. This confirm the bullish season.

In the above screen short, the price movement(Line chart) crossed the MA(20,50) and move upward direction. Then the MA 20 crossed to MA 50 and move in upward direction which confirm that the buyers are in control. I placed the stop lose, take profit and then executed the buy order because the market is expected to rise up after this cross section.

Question 6

Investigate the Advantages and Disadvantages of Line charts according to your Knowledge.

Advantages of Line Charts.

Below are some advantages of the line chart

Simple representation

The Line chart is represented by a single oscillating line, this make it very easy for the traders to read the market structure. They can easily identify the market moves seeing the single oscillating line. They can set the trades easily using the line chart. Even the new comers and the beginners can use the line chart because there is no complexity in reading the line chart.

Integration with other indicators

The Line chart is very simple to read and easy to understand. This is even suitable for the new comers because they can also understand it. We can also integrate it with any other indicator easily. This enhance the accuracy of results. It also make it more simple for the new comers to read, understand it and to trade successfully

Identification of support and resistance level.

The line chart use the single oscillating line which is plotted using the closing price of asset for specific time period. It indicate the price moment's directional bias and reduce the noise. The reduction of the noise give us a clear view of the price movement. We can easily identify the trend.

Filter out noise

The line chart filter out the noise and give a clear representation of the price movement.

Trend Identification

The line chart use the single oscillating line which is plotted using the closing price of asset for specific time period. It indicate the price moment's directional bias and reduce the noise. The reduction of the noise give us a clear view of the price movement. We can easily identify the trend.

Disadvantages of Line Charts.

Below are some disadvantages of the line chart

Dependent on other indicator

This indicator produce the less information. When we combine it with other indicators, it produce more trading singles. Then we can say that it is dependent on other indicators to produce the trading signals.

Less Informative

The Line chart use the single oscillating line which is plotted with the closing price. It is very simple to read and understand. This is equally less informative and do not give us the depth information about the price action in the market. We cannot rely on it in the market

Less fruitful

As the line chart use the single oscillating line which is plotted with the closing price, it has very limited usage and cannot give us the depth of information. We cannot get more information about the market and price movement using the line chart. It do not show the information about the gapping up or low.

Not suitable for short time frames

This indicator is usually not consider to use in small time frame trading. The traders with small time frame cannot use the line chart because it is not suitable for short time frames.

Conclusion

The line chart is very simple and easy to understand which use the single oscillating line to represent the price movement at the given time interval. This line is plotted using only the closing price. It is very useful because it filter out the noise generated from the price movement. Even the new comers can use the line chart. No doubt that this is less informative as compare to the other chart but it can even be useful to spot the trading opportunities to earn the more profit.

@sherazsultan