Crypto chart patterns are diagonal parallel lines of exchange range which can indicate either a trend reversal or shift in its slope. While they can help predict market sentiment, it is crucial that traders wait for confirmation signal before trading any crypto pairs that exhibit these characteristics.
Traders should keep an eye out for flags, pennants, rising wedges and triple tops and bottoms – these patterns indicate whether prices will continue trending upwards while triple tops and bottoms indicate possible price reversals.
Reversal patterns
Crypto traders can identify reversal patterns in markets by looking for specific shapes in relation to overall trend lines. Such patterns typically indicate that current momentum could soon switch direction.
Reversal patterns include double top and double bottom formations. These M-shaped formations occur after price has repeatedly reached highs without breaking through a support level, signalling that an upward trend may no longer exist and suggesting bearish moves may soon follow.
Another reversal pattern is the head and shoulders, which resembles an H with two lower shoulder formations on either side. This signal typically represents a change from bullish-to-bearish trend reversal during an uptrend. Furthermore, bilateral reversals such as rising wedge and falling wedge patterns exist, which feature parallel trading ranges and temporary pauses in trend as trading volume dips.
Head and shoulders
The head and shoulders pattern is a reversal pattern that indicates an end to bullish trends. It features three peaks, with the central peak being larger than its two outer counterparts. When this happens, prices drop towards their initial swing low before rallying up again towards another peak before falling back down once more and eventually hitting bottom once more before rising back up toward another lower-than-previous one, thus marking an end of any bullish trend.
The Gartley pattern is widely considered one of the most reliable reversal patterns. To protect themselves, traders should employ risk management tools and never invest more than they can afford to lose. Chart patterns do not always produce 100% hit rates, making research essential and avoiding emotional decisions as much as possible. A crypto trading platform could be an excellent way to reduce risks.
Cup and handle
A cup and handle pattern is a bullish chart formation in which prices retrace some of their previous uptrend, then rebound back towards their previous high point. First outlined by William O’Neil in his 1988 book How to Make Money in Stocks, this trending strategy has since become widely popular with investors and traders – as well as cryptocurrency traders who have adopted its use on digital markets.
As prices reach their previous highs, failure to break out of the base catches recent buyers who purchased near the top of the cup and makes them nervous of double-top reversal. As traders slowly sell off their positions in anticipation of such an outcome, creating the handle portion of this pattern.
The handle typically appears as a gradual price decline that resembles either a flag pattern or brief channel on charts, often with lower trading volume than its cup counterpart. Once prices surpass resistance in the handle, its pattern is considered complete and verified.
Triangles
Triangles are among the most reliable patterns in crypto trading. Traders can recognize them on charts and use them to make informed decisions about future price movements; however, due to limited accuracy they should always be supplemented with additional market indicators.
Bullish ascending triangles, also known as continuation patterns, typically follow a general uptrend and feature higher lows and linear highs, usually marked by increased volume.
Bearish descending triangles are formed when lower highs meet an indefinable support level that prices cannot breach, signaling that sellers hold the upper hand. A trader would enter at either a break and retest of either an ascending or descending trendline with their stop loss near previous highs or lows depending on which way the price breaks – although be wary as false breakouts from triangles are all too frequent!
