How to Use Trading Zones in Cryptocurrency

Hello Skyrexians!

The last two articles were a deep dive into the Awesome Oscillator and Acceleration Deceleration indicators from Bill Williams. Combined with fractals and the alligator, these indicators are a powerful concept in cryptocurrency trading. This can greatly improve your cryptocurrency trading strategy, cryptocurrency trading algorithm, or you can implement it into a trading bot. Today we will expand this concept with trading zones – periods in a market with bullish or bearish dominance.

Trading zones are not a popular concept compared to Awesome Oscillator, so using them can give you a huge advantage in cryptocurrency trading because even the best crypto traders do not use them in their trading routine. Let’s go through its concept.

Before we look at the concept of trading zones, we need to understand what the Awesome Oscillator and Acceleration/Deceleration are. An amazing oscillator is the closest thing to the driving force of the market. It usually starts moving before the price if it is an impulse wave. During corrections, it may flash false signals. Before the driving force begins to move, the acceleration changes its direction. This is why the combination of these indicators is so important.

What is a shopping area?

As you know from the descriptions of AO and AC, they can have 2 conditions: increasing (greed bars) and decreasing (red bars). According to this we can define 3 marker conditions:

1. 1. Green zone. Both AO and AC have increasing columns. This is a strong bullish phase. Only long trades are allowed.

1. 1. Red zone. Both AO and AC have descending columns. This is a strong bearish phase. Only short positions are allowed.

1. 1. Gray area. AO and AC have different directions. This trading zone cannot generate any signals

How to trade in the green zone?

Let’s look at the graph below and find the first band where both AO and AC became positive.

After that we saw two bars with lower closing prices. We do not take such bars into account. We then saw the first bar in the green with a higher close. This is our first signal bar, we will buy the asset when the bar closes. The next 4 bars were also green and rose inside the green zone. At the close of each candle we will buy. When we count 5 green candles in a row, we still stop opening long trades.

A stop order must be placed at the low of the recent green zone bar to close out any previously opened long positions. We see that the market stopped us after 3 bars.

How to trade in the red zone?

In the price chart below, we can notice the first candle with red AO and AC, which begins the red zone. We do not sell on the first candle inside the red zone, we will wait for the first one which has a lower close than the previous candle.

After this candle, we saw a candle with a higher close, so we simply skip it. The next two candles were signal ones, so we will open short positions at their closing prices. After this we saw a senior closing candle – just skip it. The next two candles are again signal ones. Now we have 5 candles in the red zone, let’s add a stop to our short position. Then we must act as we did in the green zone. Place a stop order one tick above the high of the last candle where we added to our short position and watch that stop as the price moves in your direction!

Conclusion

We discussed the concept of trading zones, an extension for the AO and AC trading systems. Its combination allows us to identify periods in the market in which we can be aggressive traders. You may have noticed that during strong bull markets, adding to your position on each candle can significantly increase your profits. Each local dump is usually immediately restored under pressure from buyers. The same may be true. for strong bearish phases. Adding on each candle is an extremely aggressive strategy, so you must use proper risk and money management to avoid losing a lot of money, because, as you remember, the main law of the markets is that price movements are unpredictable! Take note!