Recognizing Chart Patterns in Crypto Trading
Crypto markets can be extremely unpredictable sometimes. Coins suddenly go up or down because of numerous reasons like panic news about Bitcoin ETF rejections or huge buys/sells performed by crypto whales. It’s not an easy task to trade efficiently when a lot of factors are out of your sight. However, one convenient trading tool is always there at your disposal. Yeah, charts.
Trading charts are wonderful for technical analysis. By checking historic and current data, you can predict the next market move. But another question appears here: how to read charts correctly? This guide unveils the main patterns, including both bullish and bearish signs. Just to remember, chart patterns are specific figures that consist of trendlines and curves and signalize upcoming price changes.
Feel free to explore these figures by yourself using cool TradingView charts integrated into our crypto trading terminal Superorder.
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Continuation Patterns
These figures indicate that a current trend has more chances to continue. For example, if BTC/USD pair skyrocketed for a few days and then formed a continuation pattern, you can buy more coins because the next uptrend is highly likely. Similarly, when a coin is dumping and you see a continuation pattern, opt for short positions on crypto exchanges because further sinking is possible.
The first example is a story about bullish patterns while the second one is about bears. Let’s look at both subtypes. For these and the following shapes, we will mention the best time to buy/sell as well as confirmation signs.
Bullish Figures
1.Flag + Pennant. Similar patterns with slightly different upper lines. Recommendations are the same. Buy when price closes above the upper line. The pattern is confirmed with at least two touches to both lines.
2. Cup with Handle. Generally, you will see two price swings with the first one larger than the second. Buy when price closes above the upper line of a handle aka the second smaller swing. The pattern completes when price moves higher.
3. Ascending Triangle. The combination of an upper resistance horizontal line and a lower ascending trend. Buy when price closes above the resistance. The pattern is confirmed with at least two touches to both lines.
4. Measured Move Up. Put simply, it’s a rectangle. Side movements between two uptrends are pretty familiar for all traders. Suggestions and confirmations are the same as for bullish Flags and Pennants.
5. Ascending Scallop. It’s similar to the Cup but without a Handle. Scallops are temporary price dips during the uptrend. The pattern confirms when you can draw a horizontal line between two slopes. Buy when price closes above this line.
6. 3 Rising Valleys. Three consecutive small price dumps with each subsequent located higher than its predecessor. It’s easy to confirm the pattern as you only should spot these three pits. Buy when price closes above the second peak.
Bearish Figures
1.Flag + Pennant. Again, shapes are pretty similar but lower lines feature a different angle. Sell when price closes below the lower line. The pattern is confirmed with at least two touches to both lines.
2. Inverted Cup with Handle. This one is similar to the bullish sign but it has mirrored swings. Sell when price closes below the lower line of a handle aka the second smaller swing. The pattern completes when price dumps.
3. Descending Triangle. In this case, the lower horizontal line acts as strong support while the upper trend moves down. Sell when price closes below the support. The pattern is confirmed with at least two touches to both lines.
4. Measured Move Down. Here we have a rectangle again but it’s located between two downtrends. Use the same recommendations and confirmations provided for bearish Flags + Pennants.
5. Descending Scallop. The pattern is a simple inverted Ascending Scallop. To confirm it, you also should draw a horizontal line between the left and right slopes. Sell assets when price closes below this line.
6. 3 Descending Peaks. Again, there will be three price peaks but each subsequent will be located lower than prior ones. Once you’ve spotted three jumps, consider the pattern confirmed. Sell when price closes below the second peak.
Reversal Patterns
Unlike continuation signs, these patterns mark that an ongoing trend is likely to change. The technical analysis states that after a reversal pattern, an uptrend will turn down and vice versa. Thus, after spotting such figure during the bullish market, you want to set Stop Losses or even close part of open positions. Similarly, a reversal figure that appears under bearish conditions may be a strong mark of the emerging rebound.
Overall, there are three main reversal chart patterns:
1.Double Bottoms. This one is pretty simple. You want to find something like a big letter W that begins with a downtrend and features several rebounds. Once price bounces from the support two times, you can buy above the middle top level. It works for Double Tops, as well.
2. Head & Shoulders Tops. The most famous reversal trend consists of one great pick and two smaller ones located on both sides of this middle mountain. You can sell once price breaks below the neckline after the right shoulder. Surely, the inverted Head & Shoulders for bearish trends exist, too.
3. Diamond Bottoms. This figure is similar to the previous one but it has a V-shaped neckline. Diamonds almost always occur during bullish markets and signal the possibility of a breakdown earlier than Head & Shoulders. Trading recommendations are the same but you should be skilled enough to spot this pattern.
The Importance of Fundamental Analysis
The final insight may be obvious but all our readers should clearly realize this fact: even the best technical analysis can’t protect you from losses. That’s why you want to use fundamental analysis in addition to charts. Put simply, this idea provides for studying the chosen coin pairs, market conditions, white papers, even rumors and forum talks. Valuable info can boost your knowledge and help to make more elaborate trading decisions.
To learn more about top crypto coins you can check our Blockchain 3.0+ project, for instance. As well, check out our Facebook and Twitter pages. And feel free to share this info if it was useful. See you!
