Understanding Price Movements in Stocks and Cryptocurrencies
2024-08-24

A person's mouth can lie, but charts do not lie.

The first chart is for a stock called Palm Story, and the second is for Ethereum Classic.

Palm Story (2021-2022)

Ethereum Classic (November 2023)

The two charts above are quite similar.

For those who know nothing about charts, it might take 1 to 2 years to understand these reasons.

Commonalities:

Large Trading Volumes at Specific Price Levels:

You can see that trading volume increased significantly at certain price levels on both charts.

Volume Increasing During Uptrends:

It is crucial to note that trading volume spikes during uptrends.

Questions:

Can High Trading Volume Indicate a Trend Reversal?

It depends on the situation. Typically, one reason for a significant drop from high levels is a decrease in trading volume.

When trading volume decreases gradually, the price may either rise further(not much) before dropping or create a double top. 

If volume continues to decrease and there’s no one left to absorb the supply, a significant decline occurs.

However, if someone buys heavily to counter a downtrend, the price might continue to rise, similar to a bull market.
Thus, I dislike decreasing volume.

Analogy: It’s like choosing to eat cold food instead of warm dishes at a buffet.

Volume Decreases During Corrections:

The average trading volume decreases, while volume spikes only during significant price increases.

This indicates that while public interest diminishes, some individuals are quietly accumulating shares at specific price levels.

Long Wicks and Closing Prices:

In Ethereum Classic, the long lower wicks in the recent sharp drop (watch the closing price) are significant.
Note the closing price: they tend to close around similar levels, suggesting difficulty in accumulating above certain levels.

You can observe similar behavior in Palm Story’s closing prices at specific levels.

Bull Traps Exist:

In a major trend, accumulation occurs, but short-term bull traps are common.
Bull traps, however, do not determine long-term trends. When a bull trap forms, prices often drop sharply.

Support and Resistance:

It is crucial to recognize that important resistance levels turn into support and that breaking resistance often leads to significant upward movements.

Can Beginners Catch This from the Chart?

It is challenging to grasp these details without closely analyzing the chart. Understanding these nuances usually requires 1-2 years of trading experience and not just reading books.

This is just one aspect of chart movements, and there is a significant difference in detail and skill between experienced traders and beginners who read about it only once.

There are ways to predict potential explosions in price movements before they happen.

Why Did Palm Story and Ethereum Classic Show Different Movements?

Palm Story dropped dramatically, while Ethereum Classic showed tremendous growth.

The reason for this is trading volume.

Failing to consider trading volume in trading is like going into battle with a firearm without knowing how to use it.

Think about this, and if you’re really unsure or have questions, leave a comment.