Crypto Trading 101: Simple Charting Patterns Explained

This pattern reveals that though the start is bearish, buying pressure surges during the course of the second candle. This means that Bulls have a considerable interest in buying at the prevailing price. Wicks simply depict the difference between opening/closing prices and highest/lowest prices achieved during the specified period.

Look for chart patterns that are diverging from the norm and keep an eye out for reversal patterns from downtrend to an uptrend. Also, keep an eye out for bullish news events as it is common immediate edge recensioner for crypto values to change in response to current events. Traders have been relying on crypto chart patterns to assist them in predicting future price movements for decades now.

What are trading patterns?

Double tops function over most time frames, however, they are best viewed and confirmed on the daily or weekly chart as well as the higher intraday charts such as the four or eight hour. AltSignals has been working very hard in order to create a financial indicator to trade virtual currencies and other assets. The team of experts and analysts behind this company created a great indicator that would allow you to receive a clear indication where to enter or exit a trade. To help you understand what is a double bottom, let’s find a double bottom reversal example in our GoodCrypto app. You’ll learn the MOM indicator and how to use it to improve your trading strategy.

• 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.
• Traders should look for emerging patterns where the range is sufficiently wide.
• All examples listed in this article are for informational purposes only.

While candlestick patterns can provide valuable insights, they should be used with other technical indicators to form more well-rounded projections. Some examples of indicators that can be used in combination with candlestick patterns include moving averages, RSI, and MACD. On most crypto charts, a green candle indicates a bullish move or a price increase, while a red candle shows a bearish move or a price decrease. Using crypto trading patterns can make you an expert trader — if used properly.

Must know crypto trading patterns

As such, a doji can indicate a point of indecision between buying and selling forces. The dark cloud cover pattern consists of a red candlestick that opens above the close of the previous green candlestick but then closes below the midpoint of that candlestick. The bearish harami can – unfold over two or more days, appears at the end of an uptrend, and can indicate that buying pressure is waning. The bearish harami is a long green candlestick followed by a small red candlestick with a body that is completely contained within the body of the previous candlestick.

• However, it can give either a bullish or a bearish signal — it all depends on what point of the cycle it is seen in.
• Traders usually wait and see what type of price action forms following a long-legged doji candlestick.
• The pattern is called “inverse” because it is the opposite of the traditional head and shoulders pattern, which is a bearish reversal pattern that is formed after an uptrend.
• This bearish engulfing reveals that selling pressure has increased and signifies the start of a possible downtrend.

Novice traders should use higher time frames (1D, 4H) while more experienced traders can use lower time frames. It also depends on how much time you have to monitor your positions. Lower time frames (1H, 15 min) require more frequent trade management (monitoring, closing). However, the success rates of the patterns are about the same across these time intervals. So a Horizontal Level Breakout has about the same chance of success on a daily (1D) interval as it does on hourly (1H) interval.

Examples and Interpretations of Candlestick Patterns

So if the price has not achieved a forecasted price within 5 candles, trader should close that position. Price patterns appear when traders are buying and selling at certain levels, and therefore, price oscillates between these levels, creating patterns. There is always some uncertainty when trading charting patterns as you are working with probabilities. Proper risk management is essential in any trade to avoid excessive losses.

• The bearish volume increases first and then tends to hold a level since bearish trends tend to increase in volume as time progresses.
• In other words, the asset’s price decreased during the specified trading period.
• Using crypto trading patterns can make you an expert trader — if used properly.
• When this trading pattern appears, it often forms a resistance level at the top of an uptrend.

Here, the candlestick shows that the price slightly increased by the end of the trading period after reaching higher prices along the way. Candlestick patterns are generally categorised into bullish and bearish patterns. A bullish pattern generally indicates future positive price movement for an asset, which may incite a trader to buy in anticipation that the token will increase in value. The inverse happens with a bearish pattern, which may incite some traders to sell before the potential downwards price movement. It is worth noting even during busy trading periods, no chart pattern is 100% reliable. You can recognize pennant patterns by two trendlines, one downward trendline and one upward trendline, that eventually converge.

Cup and Handle

Flag patterns have two parallel trendlines that can slope up, down, or sideways. It occurs when an uptrend or downtrend develops between parallel support and resistance lines. They indicate a possible trend reversal or a change in the slope of the current trend.

• The bearish or bullish symmetrical triangle pattern builds up momentum with lower highs and higher lows.
• On most crypto charts, a green candle indicates a bullish move or a price increase, while a red candle shows a bearish move or a price decrease.
• Indecisive candlestick with top and bottom wicks and the open and close near the midpoint.
• Immediately after, buyers began gaining momentum, hence the long lower wick.

This includes understanding how to read candlestick charts and the various patterns that can form. The shooting star candlestick is a bearish pattern usually appearing at the end of a price uptrend. This candlestick has a short body situated near the bottom and a long wick that extends upwards. It indicates that an asset’s price slightly decreased by the end of the trading period, even after reaching higher prices along the way, which explains its red colour.

The Purpose of Using Crypto Chart Patterns

And this skill comes with experience, so apply the knowledge I told you about and execute profitable and controlled trades. The MACD is among the most popular momentum indicators that are used to spot trend reversals. Although it’s an oscillator, it is not typically used to identify overbought or oversold conditions. Most investors are inclined to place a stop order right below the double bottom or top of the double top.

Traders frequently use the dragonfly doji candlestick as they would a hammer, but it is suggested to wait for a confirmation candle before entering a trade on this candle. By itself, a doji candle is a neutral candlestick – pattern, but it has two major types, that being the dragonfly doji, and the gravestone doji. The hanging man candlestick pattern is actually the bearish alternative to the hammer pattern covered just above.

How to trade crypto using Chart Patterns

Depending on the situation, it may indicate a prospective price increase or a strong reversal trend. The image below shows that after a period of high selling pressure, a bottom was hit. Immediately after, buyers began gaining momentum, hence the long lower wick.

• Every trader can benefit from being familiar with candlesticks and what their patterns indicate, even if they don’t incorporate them into their trading strategy.
• In an uptrend, the price finds its first resistance (1) which forms the left shoulder of the pattern.
• The percentage levels given are the areas where the price could stall or reverse.

An ascending triangle, for example, consists of a flat line connecting the recent price highs and a diagonal line connecting the higher price lows. They are continuation patterns; however, many traders also consider them bilateral patterns. These types of patterns occur more frequently than others and are, therefore, a popular tool for technical analysis. The inverse head and shoulders chart pattern is a bullish reversal pattern that is formed after a downtrend.

Bullish Flag, Bearish Flag, Bullish Pennant, Bearish Pennant

When the movement reaches the end of the triangle, it will continue in the same direction it was traveling before the triangle. A rising wedge is a bearish reversal pattern that comes to life when the price of an asset forms lower highs and higher lows. The Triangle chart patterns refer to the formation of multiple candlesticks enclosed within two converging support lines. The converging support lines depict a triangle shape and indicate the continuation patterns of bullish or bearish market patterns.

• With candlesticks, you can get clues and insights from the price action as well as the general mood of the market for that asset.
• Fibonacci retracements can be used to place an entry order, set a price target or determine a stop-loss level.
• This pattern shows a series of three bearish candles with wide enough bodies and short wicks, with some overlap on each other’s starting and closing price ranges.

There are several ways of approaching trading the cup and handle, one of which is to enter a long position. Start by placing a stop buy order slightly above the upper trend line of the handle. Trading cryptocurrencies can be very risky, particularly due to the volatile nature of the market. That is why traders, especially novice traders, are always recommended to maintain adequate risk management. The price reverses and moves downward, it finds the second support (3), forming the (inverted) head, which must be lower than the first support (1).

Technical Indicators

Trading patterns are technical analysis tools traders use to create more informed trading strategies in predictable markets. The second major type of pattern in a chart is the continuation pattern. As their name suggests, continuation chart patterns signal the continuation of a trend. Like with reversal patterns, trading trend continuation patterns can be applied to both bullish and bearish situations. There are two main trading patterns in day trading – crypto reversal patterns and continuation patterns. First, let’s cover reversal chart patterns as they usually trigger higher trading volumes and can help you make good amounts of profit.

• It also depends on how much time you have to monitor your positions.
• As the price reverses and moves downward, it finds the second support (4), which can be higher or lower than the first support (2).
• In addition to that, the app allows traders to connect all of their exchange accounts and various blockchain wallets in order to be able to easily access and trade one’s assets on the go.
• The trader can set a buy price at 0.5% above the resistance in case of a breakout, and a 1% stop loss below it, in case the breakout isn’t confirmed.

Traders usually wait and see what type of price action forms following a long-legged doji candlestick. 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. That was all you need to know about trading cryptocurrency chart patterns; feel free to post your queries in the comment box below if you have any. The reason I have told you about these chart patterns is that these patterns effectively work in the cryptosphere. All the patterns and indicators that I have told you about will come in handy when you trade.