Ultimate Trading Guide: Charts & Pattern
#CoinDCXpathbreaker
In this article, I will be discussing the most useful charting patterns that you can use in your trading journey.
Chart patterns will be your stepping stone into the world of Technical Analysis and once you start getting the hang of TA, trust me, you will not rely on any source for your trade execution. In the articles I will be covering the following topics at length:
Fibonacci Retracements and Extensions
Fibonacci retracement levels can be drawn from the extreme high to the extreme low for any price movement. Within this price range, ratio-divided support/resistance lines are drawn, and can be traded as Potential Reversal Zones (PRZ) for price-action. These are levels that traders keep an eagle-eye on, to open or close trades, making the Fibonacci ratios more consistent.
Traders can easily identify setups according to relevant Support:Resistance patterns, as the tool follows the sequence of the Fibonacci sequence of numbers. It’s surprising how well the price-action of any asset that can be charted respects the ratios of Fibonacci and can clearly indicate price trend reversal, rejection level and support area.
You can use fibonacci retracements and extensions for the macro or micro trend, like I have used for BTC/USDT Daily chart below…
Using the Fibs on a higher time-frame chart, would help a trader chart the macro structure & price-movement…
Similarly, traders who practice intra-day trading can also make use of the Fibs on alower time-frame, such as, the 1H chart. Chart above of XRP/USDT on CoinDCX Pro app.
Pitchfork
The pitchfork is drawn from an extreme high or low point of the price & connected to another extreme low or high with an anchor point being a previous extreme low or high.
The median line (red) gives the expected mean of the trend—Meaning, price will continually attempt to return to this line until broken below or above, depending on the charting of the Pitchfork.
As seen in the chart above, there are 4 diagonal lines (excluding the RED diagonal), each of the diagonal lines of the Pitchfork represents a potential reversal zone; or Support:Resistance line.
The upper blue diagonal zone being ‘Heavily Overbought’ & the lower blue diagonal zone being ‘Heavily Oversold’
Fractals
Fractals on charts will be repeating price patterns, which will be displayed through a consistent price-action. Chart patterns and harmonics are examples of known repeating fractals.
The above chart clearly shows the first Orange Box where price had confluence with the 3 blue dots before going on a deeper downtrend.
The second box shows the same fractals in play, and after confluence with the 3rd Blue dot, the price of BTC has no plunged below the $31,000 level (at the time of writing)
Chart Patterns
All chart patterns consist of:
Volume Candles
In the above chart on BTC/USDT, we can see the white arrow pointing towards the Volume Candles. These candles correspond with the main candlesticks of the assets price-action. If you zoom-in, you can see any major RED candle on the chart, it corresponds with the Volume candle on BTC/USDT pair as well.
Volume candle gives you an idea about the Buy/Sell pressure for a given period of time. The chart above is on the 1D TF, that means the Volume represents 24 hours of Buy/Sell data.
Volume candles are super crtitical when trading Breakout & Breakdown patterns. For example, if we are wating to take Long entry after price breaks to the upside from a FALLING WEDGE (bullish pattern), then the breakout should also be backed by a huge Volume candle, indicating STRONG BUY PRESSURE.
Always remember, RISING PRICE & DECLINING VOLUME are BEARISH SIGNS
Measured Moves
Every pattern, irrespective of being Bullish or Bearish give us our measured move. Usually, all measured moves are calculated simply by measuring the size of the pattern.
In the above chart, we see a Bear Flag formation. The measured move after price breaks below the flag formation would simply be the length of Flag Pole.
There will always be margin of errors & you should not consider then a SOLID 100% in terms of accuracy. Close positional size accordingly.
Trade Entry via Patterns
The above chart shows the formation of the H&S. Now trade entry though patterns can be a super strong way to Long or Short the coin, but it can be a sure-shot disaster if the trade idea is executed prematurely.
The above H&S would be a success, if the trader waited for the price to:
- Breakdown from the neckline
- Retest the neckline & confirm it as Resistance
- Then open a Short position with Stop-Loss above the neckline
Sometimes price can have a false breakdown, catch traders off-guard and immediately pump right back up — Invalidating the entire setup & pattern.
All technical patterns can be drawn on chart and predicted as soon as price-action allows, but trade execution should never occur the pttern has absolutely confirmed itself.
Trend Reversal
As a trader, you should always be quick at noticing Trend Reversals on charts. In the chart attached above of BTC/USDT (CoinDCX), we can clearly see the Green highlighted area as a Upward Trending Price-Action, But because we recognised a Resistance area with the blue horizontal line & price failed to break above it, we could detect a Trend Reversal in play.
Similarly, at the bottom of a Bear-Trend, if you see a bearish pattern forming, it will always indicate a Continuation pattern, instead of a Trend Reversal Zone.
Conclusion
Currently we are in a Bearish market and there is no DENYING that fact. As traders, you should not focus on panicking or Revenge Trading, but hone your skills as trader and focus on educating yourself… There are vast resources available online & you could even make use of CoinDCX Learn
The Bear market is a great opportunity to shut out the euphoric noise and focus on crafting yourself for the next Bull Run.
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A huge thank you to CoinDCX for giving me this opportunity to write such a detailed report and be a part of the #CoinDCXpathbreaker program, enabling me to share such knowledge with everyone in the crypto space.
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