Cryptocurrencies have enjoyed a nice few days after a long rout, meaning that my timeline is now filled with bitcoin charts and the like. To be honest, I've been so busy with charts for Allstarcharts India that I hadn't checked my crypto charts in a while. Well, I'm glad I did, because the chart of ethereum is a textbook example of a core technical analysis concept: polarity.
Polarity, in its simplest form, is the idea that former support turns into resistance and former resistance turns into support. It's an incredibly simple supply and demand concept that many seem to miss, but once the psychology driving polarity is understood, it becomes clear why it's one of the most important principles in technical analysis.
Taking a look at ethereum, the daily chart from the past year is as clean of an example of this concept in practice as you'll find. In June 2017, prices moved up to just over $400 and then quickly reversed, establishing an initial area of resistance. In August, prices retested that area and were quickly rejected as supply overwhelmed demand.
Where the shift occurred was in late November, when prices broke above resistance in the $390 to $410 zone, and it quickly became support. Since then, we've had three instances in which prices successfully tested that area, and each time, we've seen demand overwhelm supply and send prices higher.
What's also interesting is that, on the two most recent tests of support, momentum did not get oversold. That's a whole other post in and of itself, but if you're interested in learning about how we use momentum and the relative strength index (RSI) in our process, I'd encourage you to check out our posts on them.
It's been a tough year for crypto bulls, but for now, it appears that buyers are back in control as long as ethereum prices are above this support zone.
If this is your first time hearing the term polarity or you need a quick refresher, I encourage you to read our post on it in full. Not all instances of polarity are as clean as what we're seeing in ethereum – sometimes, we get failed moves like we saw briefly in April, but when we do come across instances like this, it's a great reminder to revisit this crucial fundamental concept.
Thanks for reading, and let us know if you have any questions!