The Concept Of Magnets
The Concept Of Magnets
From analysing the BTCUSDT charts using the 5 min timeframe, I realized the concept of "support" and "resistance" is not always the best to forecast what could happen. Sometimes it's better to talk about magnets.
A magnet is a price line where the price tends to oscillate around.
Each market and each timeframe has it's own magnets at specific regular prices. for BTCUSDT in the 5min timeframe in 2024, the magnets are located every 1,000 USDT.
To better study magnets we draw lines between them to separate them in 5 zones (called "grids")
The grid makes it easier to describe how high or low the price goes compared to the active magnet.
The active magnet is the magnet where the price has been oscillating around last. It's very often the last magnet that was touched, but not always. There can be only 1 active magnet at a time. So when we do our analysis we have to decide which magnet we believe is active.
Once on a magnet, it's very unlikely price will move away far from it (far means more than +2/-2 grids), unless there is volume from new market participants or a news.
Before the price manages to escape a magnet, it can test the +3/-3 grid, get back to the magnet then new market participants are attracted to trade which increases the likeliness of leaving the magnet.
The magnet is very interesting to explain some price reversals that seem to come out of nowhere. For example in the picture below, Why does this price reversal happens?
In my opinion the reversal at point (2) can be explained by the price reaching the low of the 3rd grid from the active magnet, including a spike of volume. Some market participants hoped to leave the magnet but failed due to the other market participants seeing an opportunity to buy at a low price compared to the active magnet. The +3/-3 area makes for an excellent entry point if we want to capitalize on a magnet.
Magnets are not always located at round prices, a magnet is just an area in the chart where price oscillates. In the picture above, point (4) shows us that price has established a new magnet at 40,600. Look at the end of the chart (5) how the price tries to leaves this magnet with a spike of volume at 10kBTC! (hint: price will after struggle for 20min before really managing to escape).
Magnets will not replace support and resistance, but having them in our toolbox helps a lot to understand some price movements.
The vocabulary of magnets
Price "beats" on magnets (visually an arc of circle). if it beats above the magnet we call it an "upbeat". If it beats below the magnet we call it a "dobeat".
If the price only upbeats, we call the magnet an "upmagnet".
If the price only dobeats, we call the magnet a "domagnet".
When the price switches sides with the magnet we call it a "flip".
If price goes from above the magnet to below the magnet we call it a "doflip".
If price goes from below the magnet to above the magnet we call it an "upflip".
To count we can do in general like "beat 1, beat 2, beat 3.." or differentiate based on the type of beat "upbeat 1, dobeat 1, upbeat 2". Same applies with flip.
To describe the height of a beat (how far it went from the active magnet), we use the grid. In the picture above, the upbeat 1 has a height of 1.5 based on the grid.
An "escape" is when the price leaves the magnet for a new magnet. If it exits from above it's called an upescape. If it exits from below.. a doescape.
A "flirt" is when the price gets very close to another magnet, almost touches it but does not touch it. This scenario sometimes happens and can be a signal for a price that will quickly return to its active magnet. If it flirts with the magnet below, a doflirt. If it flirts with the magnet below it's an upflirt.
Why all this vocabulary? To be able to describe magnets easily with words.
A magnet description
mag 1.5,1.5,-1.8,2.8,-4.8,upescapethis is a magnet that starts with 2 upbeat then 1 dobeat. It's range increases with a higher upbeat at 2.8. It then does a doflirt but finally escapes from above.
Other types of magnets
Sometimes price oscillate in the middle between 2 magnets. This is called a midnet (for middle magnet).
Price generally doesn't jump from midnet to midnet (otherwise these would be magnets..). It's more of a temporary area until the price gets attached to a magnet again.
In times of trends, some magnets are skipped entirely as if they did not exist at all. These are called "skipnet" for "skipped magnet".
OTHER
_TODO
. how to call a beat that does not finish?
. how to call beats that are very long before touching again the magnet (they look like rectangular)
. analysis of the grid areas and the strategy to exploit them.