Hi friends! Welcome to this update analysis on Stellar! As you can see, XLM is dropping from the bear flag consolidation pattern, just like the other coins that I covered yesterday. With that said, I received a lot of objection from professional amateurs, who privately rip out their own hair, as they desperately search for mistakes in my analyses. Many of them were so certain that I was wrong about the bear flags yesterday. They cited volume spikes, a bottom in the market, other factors that I supposedly wasn't considering — the list goes on. Well, out of the goodness of my heart, I've decided to teach a quick lesson on bear flags.
Looking at the bear flag on the four hour XLM chart, I can see why some people didn't recognize it as a bear flag. Particularly, the shape is a bit awkward, and the elongated flag pattern (solid black trendlines,) relative to the flag pole (dashed trendline,) may have thrown some people off. As you can see, the flag part extended through about 80% of the pole. When people see this, they often think that it isn't a bear flag. What is important to understand, however, is that the flag can retrace nearly 100% of the pole, and still be a perfectly legitimate bear flag. If the flag portion began to break out ABOVE the highest point of the pole, that would negate the pattern. However, in this case, we never saw that, and the breakdown ensued.
With that said, it is extremely important for people to understand that they should never trade flags on suspicion. If you see a bear flag, you don't ever short it, until you see a breakdown — simply because flags don't always work. Also, it's important to look at the history of flag formations, in the asset that you're reviewing. If I'm looking at SPY for example, and I see a bear flag, I will look through the recent history of SPY, to see how bear flags have worked in the past. This gives you a bit of an idea, as to how likely it is for the pattern to play out as expected. Furthermore, I will look for other bearish indicators on the chart. There is no sense in trading a bear flag, if every other indicator is extremely bullish, because it probably won't break to the downside. It's also very wise, to take note of the overall trend, and see if it corresponds with the flag. Looking here at the XLM chart, you can see that we've fallen from the head and shoulders pattern (which I projected before the right shoulder even existed) and then it fell into a bear flag. These are two successive bearish patterns, which gives more legitimacy to the newly formed bear flag. Also, it's important to look at support and resistance levels, in relation to the flag. If you recall from yesterday's post, I noted that the 50 EMA and the 200 EMA were intersecting the flag. Therefore, I knew that resistance would be met, inside of the flag, which increases the likelihood of a breakdown. Volume, momentum, relative strength, and many other indicators can also be used to assess the validity of a bear flag. Those are a bit more advanced, however, and I want to keep this simple.
So, where is XLM headed from here? Well, as you can see, there is pink dotted level of support on the chart. It's actually beginning to correspond closely with the bottom of the broadening wedge formation, and there isn't much support until we get down there. Some people may look at the little peak on the rally to the all time high, and site it as support, but you can see that it wasn't supportive at all, on the two dips below it. Ultimately, I think it is only a matter of time, before we test the bottom of the wedge. Godspeed with the flags everyone!
This has been your not-so-humble market wizard, droppin' knowledge like bombs in this place! Please follow, comment, like, and share on social media. Good luck trading everyone!
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-MPC loves you-
-JD-
Looking at the bear flag on the four hour XLM chart, I can see why some people didn't recognize it as a bear flag. Particularly, the shape is a bit awkward, and the elongated flag pattern (solid black trendlines,) relative to the flag pole (dashed trendline,) may have thrown some people off. As you can see, the flag part extended through about 80% of the pole. When people see this, they often think that it isn't a bear flag. What is important to understand, however, is that the flag can retrace nearly 100% of the pole, and still be a perfectly legitimate bear flag. If the flag portion began to break out ABOVE the highest point of the pole, that would negate the pattern. However, in this case, we never saw that, and the breakdown ensued.
With that said, it is extremely important for people to understand that they should never trade flags on suspicion. If you see a bear flag, you don't ever short it, until you see a breakdown — simply because flags don't always work. Also, it's important to look at the history of flag formations, in the asset that you're reviewing. If I'm looking at SPY for example, and I see a bear flag, I will look through the recent history of SPY, to see how bear flags have worked in the past. This gives you a bit of an idea, as to how likely it is for the pattern to play out as expected. Furthermore, I will look for other bearish indicators on the chart. There is no sense in trading a bear flag, if every other indicator is extremely bullish, because it probably won't break to the downside. It's also very wise, to take note of the overall trend, and see if it corresponds with the flag. Looking here at the XLM chart, you can see that we've fallen from the head and shoulders pattern (which I projected before the right shoulder even existed) and then it fell into a bear flag. These are two successive bearish patterns, which gives more legitimacy to the newly formed bear flag. Also, it's important to look at support and resistance levels, in relation to the flag. If you recall from yesterday's post, I noted that the 50 EMA and the 200 EMA were intersecting the flag. Therefore, I knew that resistance would be met, inside of the flag, which increases the likelihood of a breakdown. Volume, momentum, relative strength, and many other indicators can also be used to assess the validity of a bear flag. Those are a bit more advanced, however, and I want to keep this simple.
So, where is XLM headed from here? Well, as you can see, there is pink dotted level of support on the chart. It's actually beginning to correspond closely with the bottom of the broadening wedge formation, and there isn't much support until we get down there. Some people may look at the little peak on the rally to the all time high, and site it as support, but you can see that it wasn't supportive at all, on the two dips below it. Ultimately, I think it is only a matter of time, before we test the bottom of the wedge. Godspeed with the flags everyone!
This has been your not-so-humble market wizard, droppin' knowledge like bombs in this place! Please follow, comment, like, and share on social media. Good luck trading everyone!
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-MPC loves you-
-JD-
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If you'd like to see how I called the top in Stellar, check out my old chart...
