When analyzing cryptocurrency charts, it is essential to look out for patterns. Doing this will give an indication of where prices may be heading.
An inverted head and shoulders pattern is often indicative of a possible turnaround in downward trends, while triangle ascending shows higher lows with linear highs.
Head and Shoulders
A head and shoulders pattern is an iconic chart formation that is widely known to indicate market reversals. Consisting of two shoulder areas connected by an elevated neckline, it forms after significant periods of bullish sentiment in the market. One shoulder could be lower or higher than its counterpart on either side forming a neckline at its intersections.
Price drops below a baseline to form the first shoulder, which may break below its respective uptrend trendline. From there it rises back up again before falling back down again into another upside-down trough that becomes the head and shoulders pattern. A neckline forms between these low points; traders frequently wait until this neckline breaks before making trades based on this formation.
Triangle Ascending
When this pattern appears on a chart, traders generally interpret it as an early warning signaling an imminent price rise. A combination of rising lower trendlines and horizontal upper ones creates this wide formation that gives traders access to an excellent risk/reward ratio.
The ascending triangle is part of a family of patterns that includes descending and symmetrical setups, and its appearance suggests buyers are gradually entering the market through higher lows reflected by sellers not having enough power to push prices lower. Over time, its lines will converge before breaking out in either direction; traders should ensure volume remains strong during any such breakout and be wary of false breakouts.
Triangle Reversal
Triangle trading patterns – whether ascending, descending or symmetrical – present traders with an excellent opportunity for making informed investments. Breakout patterns offer traders an edge as they can either continue the current trend or reverse it altogether.
An ascending triangle that appears during a downtrend is seen as an indicator of market reversal to the upside. Breaking above resistance line will signal bullish sentiment while placing buy orders near triangle’s peak could bring large rewards.
Conversely, if a descending triangle forms at the end of an uptrend, it should be seen as bearish signal and any break below lower support line will signal distribution.
Triple Tops
Triple Tops are bearish patterns that typically form after an uptrend has taken hold, consisting of three consecutive peaks with roughly the same price level and moderate-to-low volume at each peak, before dropping quickly or gradually after breaking below their support level (i.e. the lower trendline connecting each point between them) confirms this pattern and indicates further price decline.
A trader should exit long positions or enter shorts when price moves beneath pattern support, keeping an eye on volume to detect an increase in selling pressure as prices lower – this will provide confirmation that a triple top has formed.
Triple Bottoms
Triple bottoms are powerful reversal patterns that offer traders substantial upside potential. While often occurring during a downtrend, triple bottoms may also form after an uptrend has terminated or on an uptrend after an earlier flat base formation. To spot such opportunities successfully, traders should closely follow trading volume trends, seeking signs that it has increased before breakout of neckline resistance occurs.
Triple bottom patterns require three troughs with equal height and spacing between them, with rising prices between each trough indicating that sellers’ power has diminished, leading to an reversal in downtrend. From these three troughs should emerge a high-resistance neckline serving as the target price of resistance level formation.
Cup and Handle
The cup and handle pattern is a price pattern that often precedes a bullish breakout. It consists of two elements – a cup with rounded bottom, followed by an intermittent pullback or consolidation period known as a handle; cup depth should range between 30-50% of its predecessor rally; during formation volume should decrease while it gradually builds back up again as soon as a breakout above handle’s resistance line occurs.
A trader should strive for a price target equal to the height of a cup, in order to maximize risk-reward ratio in his trades.
