Chart Patterns for Crypto Trading Part 1: Candlestick Patterns Explained

This is done when the breakout happens and the asset’s price breaks above the neckline. But I know, reading and learning the chart patterns can be pretty intimidating for you. That is why I am here with a concise explanation of everything you would need to know to master reading crypto chart patterns, using them in your trades and boosting your profits.

• Each pattern has its own distinct characteristics and can be used to identify potential entry or exit points to make profitable trading decisions.
• Another bearish candlestick to learn is the shooting star, which is basically a hanging man candlestick turned upside down.
• There are two main trading patterns in day trading – crypto reversal patterns and continuation patterns.
• In this period of indecision, the highs and lows seem to be coming together at the point of the triangle with no significant volume.

When those two lines approach each other from left to right, it is called a wedge. Below are examples showing candlesticks and chart patterns used by traders to anticipate price movements. The good news is you don’t necessarily need to have a great deal of crypto trading experience to be able to spot these patterns. In registered fact, there are a number of easy-to-plot chart patterns that are widely used by traders of all levels to identify where prices might be heading next. You can learn to read crypto chart patterns by using services live trading charts. On exchanges like OKX, you can use demo trading to practice using trading patterns.

Technical Analysis

Of course, ыщьу tools and indicators (or even bots) can help with that, and you will get better at catching them as you practice more, but they can still be incredibly treacherous. This combination can possibly be interpreted as a bullish signal, which precedes and suggests the potential for more price increases. This pattern can be interpreted as a signal that the price may potentially be resistant to further increases, and as a result, slide down moving forward. The price may move above and below the open but will eventually close at or near the open.

• A head and shoulders top reversal pattern in a rising market could lead to a downtrend or a trend reversal.
• With the astronomic rise of Bitcoin’s value, many altcoins have registered their all-time high values in the first quarter.
• The Triangle chart patterns refer to the formation of multiple candlesticks enclosed within two converging support lines.
• All the patterns and indicators that I have told you about will come in handy when you trade.

While double tops and bottoms are far more common than triple patterns, it’s often the case that triple patterns deliver stronger reversals. A head and shoulders pattern is a reversal pattern that can appear at market highs or lows. They appear as three consecutive peaks (top reversal, left image) or three consecutive troughs (inverse head and shoulders, right image).

Pepe Coin Price Prediction As Repetitive Pattern Signals Another 15% Drop

It shows us the open, high, low, and close for our selected time frame. People typically make their trades based on 1,2, and 4 hour time frames, or candles, as well as daily, weekly, and monthly. However, all of the patterns gone over in this encyclopedia of chart patterns can be applied to lower time frames and candles such as the 1, 15, and 30 minute. Though, one must be careful on such low time frames, as the crypto market is very, very volatile.

• This is usually followed by continuation and a breakout from the bottom of the handle.
• But there are other candlesticks that are visually unique, and they often function as strong indicators of potential price trend reversals or continuations.
• This pattern can be interpreted as a signal that the price may potentially be resistant to further increases, and as a result, slide down moving forward.
• The head and shoulders chart pattern indicates that reversals are also possible.
• The pattern is completed when the price reverses and a bearish breakout emerges at 6.

Also note that the longer the wick of the hammer in candlestick chart, the greater the buying pressure. After the cup is formed and the beginning of a noticeable handle takes shape, start monitoring the trade volume closely. You might observe a steady and daily drop in volume that could strongly indicate the end of the handle’s formation is near. One way is – the follow-up, where it retraces the initial move, but not to the level of the original trade. Setting a stop loss order while selling the trend would be the best idea as soon as you see a retracement in the form of an inverted handle. I told you about the cup and handle pattern initially; as the name suggests, this pattern is the inverted version of that.

Parts of a Candlestick and What They Indicate

A bearish flag is the complete opposite of a bullish flag crypto chart pattern. It is formed by a sharp downtrend and consolidation with higher highs that ends when the price breaks and drops down. These flags are bearish continuation patterns, so they give a sell signal.

• However, they shouldn’t be your only analysis tool because as consistent as they are, they are not always 100 percent accurate.
• It occurs when an uptrend or downtrend develops between parallel support and resistance lines.
• For instance, the morning star is a combination of a bearish candle, followed by a doji and then a bullish candle.

The price reverses direction, moving upward until it finds the second level of resistance (4) which is at the same or similar level of resistance as the first (2). As the price reverses, it finds its first resistance (2) which will also form the basis for a horizontal line that will be the resistance level for the rest of the pattern. As the price reverses, it finds its first support (2) which will also form the basis for a horizontal line that will be the support level for the rest of the pattern.

Double Bottom

The better you become at spotting these patterns, the more accurate your trades develop, with the added ability to dismiss false breakouts as they appear. Worth noting that the rectangle top pattern generates much less momentum than its triangle counterparts. To gain hefty profits from the market and risk management, it is essential to be patient and an opportunist.

Traders can now attempt to profit from this failure swing by buying when there is a breakout at 4. In the pattern depicted above, the uptrend encounters resistance at 1, which pushes the price downwards until support is reached at 2. This causes the price to rise to a new point of resistance at 3, which is at a lower high. Traders can now attempt to profit from this failure swing by selling when there is a breakout at 4. The formation of this reversal signal takes place when an uptrend is unable to achieve a new high that is higher than the previous one.

Engulfing Candle

Even the most successful traders are lucky to have a 51% success rate. It occurs when the price attempts to break through a support level, – is denied, and then tries again unsuccessfully. A continuation pattern with a downward slope (top right) is known as a bearish channel.

As a basic part of technical analysis, reading charts should serve as an introduction to understanding the crypto market better through learning more techniques and crypto market factors. Reading candlesticks and charts should not be a participant’s sole basis for forecasting the market. A bullish wedge, as shown on the right, is characterised by two lines with downward slopes that almost form a triangle pointed downwards. This pattern may indicate that, as the up-and-down movement of the price is stabilising near the bottom, the asset may soon swing in a more positive direction. The inverted hammer candlestick looks like a shooting star candlestick, but it is bullish instead of bearish, as shown by its green colour.

Double Top Crypto Pattern

With time, these separate candlesticks create different day trading patterns or reversal patterns that are used in trading chart patterns. Traders rely on analyzing these patterns to gauge support & resistance levels and to get a heads up on what’s going to happen in the market next. There are a lot of different candlestick patterns that provide traders with great opportunities. Candlestick patterns are universal tools in the arsenal of any cryptocurrency trader.

• The following trading strategy will help you detect a crypto descending triangle and show you how to make money on descending triangle chart.
• This candlestick is characterised by a short body on top, a long wick at the bottom, and little to no wick at the top; hence, its resemblance to the tool.
• These trading chart patterns are essential to understand to execute controlled trades and now that you are a master of them all, go trade with complete confidence.

It indicates a reversal of direction (bullish) and is not a very common pattern. The pattern completes when the price reverses direction, moving downward until it breaks out of the lower part of the pennant-like formation (4). The pattern completes when the price reverses direction, moving upward until it breaks out of the upper part of the pennant-like formation (4). In a sharp and prolonged downtrend, the price finds its first support (2) which will form the inverted flag’s pole of this pattern. As the price reverses, in short increments of price reversal, the flag-like formation of the pattern will appear. This is identified by lower highs and lower lows until support is finally found (3).

Download the Complete Crypto Pattern Cheat Sheet

As the price reverses, in a short increment, it finds its first support level (2), completing the formation of the left shoulder. In an uptrend, the price finds its first resistance (1) which forms the left shoulder of the pattern. The head and shoulders pattern is a bearish indicator and indicates a reversal of direction.

• The uptrend in the chart above produces a triple top by touching the resistance line three times at 1, 3, and 5, and the support line twice at 2 and 4.
• In this example, the distance from the opening to the breakout equals ~$1320.
• The significance of this pattern is that it suggests a period of consolidation in a trend has occurred, and that a breakout is imminent.
• This includes setting proper Stop Loss orders, using appropriate trade size and leverage.
• Trading the rounded bottom chart pattern is quite simple, although it’s not the most accurate of patterns.

Gravestone doji… A candlestick with a name that’s straight to the point. As you hopefully guessed, a gravestone doji candle in an uptrend means that the trend is dead! Although, at first glance, the pattern might just seem like 3 candles that go up consecutively.

Bearish Flag

Crypto trading patterns have different uses, but the key purpose of the higher highs and lower lows pattern really is to identify the general trend a cryptocurrency is moving in. However, the flag pattern tells us that this downtrend is only momentary and that the uptrend will once again resume, which is what ends up happening in the chart above. Let’s have a look at an example of a rectangle chart pattern and how to trade it.

• Non-failure swings can indicate strong trends and sustained price movements.
• As can been seen from the BTC/USD chart above, awedge is being formed, with the price then reversing into a downward trend as the trading range starts to tighten.
• The diamond chart pattern signals a reversal in the general trend of the asset.
• When it comes to crypto trading, there are a variety of different chart types you can use to identify potential trading opportunities.
• Meanwhile, a bearish wedge shows two lines with upward slopes and near-convergence at a high point.

The inverted head and shoulders chart pattern is created when the price of an asset reaches a certain level and then pulls back before reaching that level again. This chart pattern is usually bullish and gives a buy signal as it is a sign that an uptrend will probably continue. Just like the name suggests, it is the inverted version of the traditional head and shoulders pattern. A bullish flag is a chart pattern that occurs when the asset price reaches a certain level and then pulls back before reclaiming that level. A bullish version of this crypto flag pattern usually gives a buy signal as it is a sign that an uptrend will probably continue. A falling wedge is a bullish reversal pattern that, just like the name suggests, is the opposite of the rising wedge.