Cardano (ADA) Buy And Sell Targets
I touched a little on Cardano’s Point & Figure chart during my cryptocurrency video this morning, but I wanted to expand a bit more on it.
Above: Cardano (ADAUSD) $0.01-box size/3-box reversal Point & Figure Chart
The Cardano chart above is a $0.01/3-box reversal Point & Figure chart. I see two very clear and highly profitable setups on the long and short sides of the market. There’s clear evidence of consolidation on this chart. That evidence is best represented by the frequent bull-to-bear and bear-to-bull market transitions (trend lines) since February 2020. Currently, Cardano’s chart shows us in a bear market. However, that could easily change. The buy stop level I’ve identified is at $1.28. This buy stop is ideal because it would fulfill two bullish events. The first bullish event is the break of a double-top that would form at 1.27 – this is the actual event to trigger a long. The second bullish event with the 1.28 entry is the break of the bear market trendline and the conversion to a bull market. The initial profit target is at 1.37 – but Cardano could very, very quickly move higher.
On the short side of the trade, I’ve identified a sell stop at 1.19. The entry at 1.19 would be after the break of the double-bottom that would form at 1.18. This also creates a third consecutive lower low. What would make this trade setup even more bearish and enhance its positive expectancy rate as a profitable trade would be the following scenario:
1.Cardano moves to the buy stop entry at 1.28 or 1.29 and stops moving higher.
2.A new column of O’s forms with a sell entry at the original 1.19 level.
If Cardano were to hit our buy stop at 1.28 but then reverse to hit our sell stop, this would create a Point & Figure pattern known as a bull trap. Bull trap patterns occur when a column of X’s creates a buy entry, fails to move above that entry, and then reverses into a column of Os. When that same column of Os starts a new short entry, we get a bull trap. Bull and bear trap patterns on a Point & Figure chart are some of the most ideal and sought after patterns because the number of people trapped on the opposite side of the market creates substantial price action when the trapped traders need to exit their positions. If Cardano were to hit the buy stop at 1.28 and then move to 1.29 but not move any higher and then create a new column of Os that generates a sell stop, we get a Point & Figure pattern known as a fake-out. Washouts are very similar to trap patterns, but they are more violent and generally move much faster than a standard trap. Like a trap pattern, the fake out pattern traps many traders on the opposite side of the trade. But what makes the fake-out trade more dangerous is the number of ‘late’ buyers (in bull traps) and sellers (in bear traps) that enter at the very top and bottom of a swing. The participants in fake out trades are often new traders who end up buying the wrong tops and shorting the wrong bottoms – they are also the types of traders who hang on to losing trades for too long and represent the final ‘push’ of traders exiting a position when a fake-out pattern nears its send.