3 crypto chart patterns to help understand the market

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Learning and recognizing the patterns on the price charts can help you understand the wild swings in crypto prices. Below are three common templates to get you started.

In technical analysis, chart patterns are a set of recurring shapes that can be drawn on an asset chart by connecting the highs and lows in prices. These formations, or patterns, usually appear around major support and resistance levels (points where prices have stopped falling or rising, respectively) and signal that a new price trend is likely to begin.

While there is a lot of debate as to why these patterns form and whether they are self-fulfilling when traders intentionally create them based on the previous expectation, they form chart patterns can be a tool. reliable to prefigure one of the following two things:

A continuation: when a crypto asset price will likely continue to follow the same trajectory after a brief period of consolidation or correction. A Reversal: When a crypto asset price will likely reverse and move away in the opposite direction of the prevailing price trend.

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The good news is that you don’t necessarily have to have a lot of crypto trading experience to be able to spot these patterns. In fact, there are a number of easy to plot chart patterns that are widely used by traders of all skill levels to identify the next price direction.

1. Triple and double tops and bottoms

The top and bottom triple or double chart patterns are exactly what they look like; when prices ricochet off the same resistance (up) or the same support level (down) two or three times in a row.

Triple and double patterns are reversal setups and signal prices are usually about to move in the opposite direction. A double top, for example, occurs when a crypto asset is in an uptrend and prices encounter an area of ​​strong resistance. On the first visit, prices rebound and fall temporarily before rising quickly. On the second visit to the same resistance level, prices are forced down much more than before and a new downtrend begins.

The story continues

If prices break above resistance or below support at any point, the setup is considered canceled and a price continuation will likely occur instead of a reversal.

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While double ups and downs are much more common than triple patterns, it is often the case that triple patterns produce stronger inversions.

2. Ascending / descending triangles

Ascending and descending triangles are known as continuation chart patterns (bullish and bearish respectively). An ascending triangle, for example, consists of a flat line connecting recent highs, and a diagonal line connecting low, highs.

These appear when bullish traders are rejected at the same resistance level repeatedly, but retreat less after each attempt until the price eventually breaks the mark. The same is true for top-down models, where sellers end up overcoming basic support after a number of pushbacks and prices continue to fall.

3. Head and shoulders / reverse

Head and shoulder setups are another type of reversal chart pattern characterized by three sequential price spikes. Two smaller peaks (called shoulders) are found on either side of a much larger average peak (called the head). The lower lows of each peak can usually be connected with a flat line, known as the neck line.

Once the last shoulder forms and comes back towards the neckline, the price explodes. When all three peaks point up, the pattern signals that a bearish reversal is likely to occur. When all three peaks point down, it is a bullish inverted head and shoulders pattern and suggests that a new uptrend is about to begin.

Chart patterns tend to form more frequently in volatile markets when crypto trading activity is high.

Higher volatility coincides with the early stages of chart pattern development, said technical analyst Daniel Chesler. A more active market attracts and supports more participants, and therefore more gross supply and demand or total investor interest than a less active market.

It should be noted that even during busy trading times, no chart pattern is 100% reliable. Seemingly perfect setups can often be rejected and move in the opposite direction or push sideways when volatility is low, which is why many traders recommend waiting for confirmation of a breakout or breakdown first ( at least two consecutive close above or below) or place a stop loss order to mitigate this risk.

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