Let’s suppose that you have drawn the main channel on the second day, and during the third day you keep watching the market in order to enter a long position during a bounce from the parallel channel line (3).
The chart gives confirmation with the delta indicator. Note the three downward arrows. They indicate spikes of negative delta — evidence of market sellers’ activity. Analyze how the price changes in response to this activity:
- arrow 1 —significant bearish progress, even though the price has closed in the middle.
- arrow 2 — bearish progress has decreased. The pressure of the sellers is strong, but the price has slightly decreased in response.
- arrow 3 — progress is insignificant, moreover, the pressure is decreasing significantly.
All this indicates a shift in sentiment and a possibility that some major trader has set up a wall of buy limit orders to meet the full wave of sells (most likely emotional ones).
When sells become exhausted, the appearance of a buyer (marked with the up arrow in the chart above) causes a flexible price increase as the price does not encounter any resistance from sellers.
It is curious that there is a characteristic pattern on the market profile in the shape of the letter “b”. The thickening at the bottom confirms the hypothesis that there is power in the market with the intent to “buy everything that sells below 4140”.