Automated strategies - market formations - part 2

Table of contents

Due to the statistical diversity of a technical analysis, cryptocurrency traders can apply a vast amount of trading strategies, logic of which can be based on patterns, support and resistance levels, Elliott wave theory, volume profile and many other parameters. The goal is to find an optimal strategy that suits your risk appetite and return expectations.

In this article you will find 2 simple strategies that can be easily applied to Bitsgap automated bots. With a built-in Bitsgap’s demo-mode you can test these strategies absolutely risk-free.

It is a powerful tool to sharpen your trading skills and to discover optimal configurations for automated bots.

Symmetrical Triangle Top

The first one, “Symmetrical Triangle Top”, is formed by the angled down resistance as sellers are pushing down the price and angled up support line as buyers absorb the selling pressure.

As a result, the price moves back and forth within these lines, and a consequent breakout of a resistance line is what traders are looking for bullish confirmation. At point 5 as displayed on a graph below, the price makes its way out of a pattern formation as it successfully breaks through the resistance. Some traders start buying exactly at point 5.

However, other traders prefer to wait for the price to reach its highest level of pattern formation, point 1. The latter strategy is better for traders who position a stop-loss order tightly to the opening price from a risk management perspective.

Conversely, a former strategy according to which traders go long at point 1 (see the graph) implies having a wider stop-loss.

Trading bot configuration for Symmetrical Triangle Top pattern:

  1. Go long at the resistance breakout (point 5) or a retest at point 5.
  2. Set a wide sell-zone up to the closest historic horizontal resistance.
  3. Set a narrow buy-zone down to the support level.
  4. Close the bot as soon as the price reaches resistance.
  5. Alternatively, enable a “Trailing Up” to follow the uptrend if the price breaches the historical resistance line.
  6. Set a stop-loss below the support line.
Tip: From the statistical point, longer time frame charts remove a large part of the “noise” that interferes with seeing the bigger picture. The weekly chart provides direction, while the daily chart, or even the 4-hours or hourly charts, are used for timing entries and exits.

Three rising valleys

The second pattern is called “Three rising valleys”. It is formed when higher lows (points 1, 3, and 5 on a graph below) are arranged along an angled up support line.

You can spot this pattern at the end of a bearish trend as a confirmation of buyers overtaking sellers, pushing the price higher. You can also observe this pattern formation on a rising trend.

Some traders start buying at point 5, anticipating a successful bounce off the support line. On the other hand, other traders wait for the price to retest its highest pattern formation level at point 4.

Trading bot configuration for Three rising valleys pattern:

  1. Go long at support (point 5) or a retest at point 4.
  2. Set a wide sell-zone up to the closest historic horizontal resistance.
  3. Set a narrow buy-zone down to the support level.
  4. Close the bot as soon as the price reaches resistance.
  5. Alternatively, enable a “Trailing Up” to follow the uptrend if the price breaches the historical resistance line.
  6. Set a stop-loss below the support line.

To conclude, patterns are being divided into 2 camps: bullish and bearish. The solution is to look for bullish patterns on a confirmed uptrend.

To learn how to determine the strength of a trend or its reversal here is the article in our blog. Read about other strategies here. You can find 2 other automated strategies explained here.

Written by Dmitry Perepelkin