Crypto Academy / Season 3 / Week 4 - Homework Post for @cryptokraze - Trading the Dynamic Support and Resistance

Good day everyone. Thanks to @cryptokraze for such a wonderful lecture on Trading the Dynamic Support and Resistance. I will be doing the homework from the lecture, so sit back and look for somewhere quite quiet and comfortable as you read through this amazing article I created just for you(😉). Let's get started!!!

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Question 1: What do you understand about the Concept of Dynamic Support and Resistance?

From the word "Dynamic" Support and Resistance, you will definitely know that it is not similar to our traditional Support and Resistance term. Although, support and resistance still have the same fundamental meaning, which is, support level on a chart is when price most likely starts to bounce back up, as it hardly goes below, hence, time for traders to start buying. While, resistance level on a chart is when price most likely starts to drop, as it hardly goes above the price level, hence, time for traders to start to sell.

We mark our traditional resistance and support levels with horizontal lines, whereas the dynamic support and resistance, doesn't do horizontal line marking but rather, it does diagonal line marking, and that's why it is dynamic. Our horizontal traditional resistance and support levels, are static, as they don't adjust with price fluctuation. Whereas the dynamic support and resistance, flow with the price and makes adjustment based on the price movement.

Under the traditional resistance and support, we look for either the highest price level or lowest price level and then drop a horizontal line marking either our resistance or support levels. Under the dynamic resistance and support, we use diagonal line to mark our support and resistance level, because we want to flow with the price movement. So we don't just draw a diagonal line, marking our support and resistance, because that will be inaccurate, we make use of a technical analysis tool, called the Exponential Moving Average (EMA).

To help you understand the concept of dynamic support and resistance better, I will be showing two examples on how the dynamic support and resistance works on the chart.

Dynamic Support Levels

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From the image above, you can clearly see how the EMA works, whenever the price touches the EMA indicator, it bounces back, hence, indicating the support levels.

Dynamic Resistance Levels

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From the image above, you can clearly see how the EMA works, flowing with the price movement and indicating the resistance levels.

Question 2: Make a combination of Two different EMAs other than 50 and 100 and show them on Crypto charts as Support and Resistance.

I combined 40 EMA and 80 EMA to show the support and resistance on ETH/USD trading chart. The red colored EMA indicator is the 40 EMA, while the green colored EMA indicator is the 80 EMA.

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40 & 80 EMA As Support Levels

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From the image, you can clearly see that the 40 and 80 EMA as our support level. As soon as the candle stick(price) touches 40 EMA it bounces back. As you can also see, the candle sticks(price) are far away from the 80 EMA, indicating a strong support levels. As soon as it(price) starts getting close to the 80 EMA, know there is a possible change in the movement of price.

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40 & 80 EMA As Resistance Levels

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From the image, you can clearly see that the 40 and 80 EMA as our resistance level. As soon as the candle stick(price) touches 40 EMA it bounces back. As you can also see, the candle sticks(price) are far away from the 80 EMA, indicating a strong resistance levels. As soon as it(price) starts getting close to the 80 EMA, know there is a possible change in the movement of price, as you clearly see at the start and end of the trading chart.

Question 3: Explain Trade Entry and Exit Criteria for both Buy and Sell Positions using dynamic support and resistance on any Crypto Asset using any time frame of your choice.

Trade Entry Criteria For Buy Position

To make a good and valid buy entry position, you need to follow these steps

• Add your EMA (Exponential Moving Averages) technical indicator on the chart. For me, I'm using 40 EMA and 80 EMA. You can make use of the EMAs that best suit your trading pattern.

• You must ensure that your EMA indicators are below the candlesticks to ensure that it is valid buy set up.

• You must ensure that the 40 EMA touches the price, once it does, wait for a while to ensure a good upward price movement follows shortly afterwards.

• You must ensure that price is no longer very close to the 40 EMA, then you can open a buy position.

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Look at the chart below for better understanding.

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Trade Entry Criteria For Sell Position

To make a good and valid sell entry position, you need to follow these steps

• Add your EMA (Exponential Moving Averages) technical indicator on the chart. For me, I'm using 40 EMA and 80 EMA. You can make use of the EMAs that best suit your trading pattern.

• You must ensure that your EMA indicators are above the candlesticks to ensure that it is valid sell set up.

• You must ensure that the 40 EMA touches the price, once it does, wait for a while to ensure a good downward price movement follows shortly afterwards.

• You must ensure that price is no longer very close to the 40 EMA, then you can open a sell position.

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Look at the chart below for better understanding.

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Trade Exit Criteria For Buy Position

To make a good and valid exit on a buy position, you need to follow these steps

• You need to know that a good exit, must have both a stop loss and take profits position.

• When using two EMAs, ensure that your stop loss is set below the long EMA, for my case, my long EMA is 80 EMA.

• If price crosses the stop loss position, in my case, if my price crosses 80 EMA, that means my set up is invalid and exiting the trade is the best option to take and then wait for the right set up.

• You should set up your take profit position and it is wise to considered 1:1 (Risk:Reward) if you are not yet an expert trader.

• Lastly, as soon as price reaches your take profit position, ensure you take your profit and don't allow greed to set in. After taking your profit, wait for another good set up.

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Look at the chart below for better understanding.

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Trade Exit Criteria For Sell Position

To make a good and valid exit on a sell position, you need to follow these steps

• You need to know that a good exit, must have both a stop loss and take profits position.

• When using two EMAs, ensure that your stop loss is set above the long EMA, for my case, my long EMA is 80 EMA.

• If price crosses the stop loss position, in my case, if my price crosses 80 EMA, that means my set up is invalid and exiting the trade is the best option to take and then wait for the right set up.

• You should set up your take profit position and it is wise to considered 1:1 (Risk:Reward) if you are not yet an expert trader.

• Lastly, as soon as price reaches your take profit position, ensure you take your profit and don't allow greed to set in. After taking your profit, wait for another good set up.

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Look at the chart below for better understanding.

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Question 4: Place 2 demo trades on crypto assets using Dynamic Support and Resistance strategy..

I will be using two crypto coins to demo trade with the Dynamic Resistance And Support Strategy. And they are;

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• XRP/USDT
• DOGE/USDT

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XRP/USDT

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For this demo trading, I used a 5 minutes timeframe. I used 40 EMA (Short, Red Color) and 80 EMA (Long, Green Color). Let's take a look at the chart.

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• Buy Entry: $0.605
• Take Profit: $0.610
• Stop Loss: $0.600

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The strategy worked to perfection, as the price rose over $0.610

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DOGE/USDT

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For this demo trading, I used a 5 minutes timeframe. I used 40 EMA (Short, Red Color) and 80 EMA (Long, Green Color). Let's take a look at the chart.

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• Buy Entry: $0.1930
• Take Profit: $0.1940
• Stop Loss: $0.1920

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The strategy worked again to perfection, as the price rose over $0.1940

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Conclusion

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The Dynamic Resistance and Support strategy is a very superb strategy as it has shown to be very efficient from my 2 Demo Trades. I believe this strategy is mainly for scalp traders, hence, the strategy works best at 5 minutes timeframe. This strategy is a very good strategy for every trader.

Special thanks to you, @cryptokraze, for organizing this amazing class and giving this nice assignment, as it has helped me in understanding Dynamic Resistance and Support Strategy.