Trading in cryptocurrency demands a deeper understanding of markets and repetitive chart patterns that can bring good opportunities to gain returns. Therefore, in this article, we’d be listing some of the best crypto price patterns that you, as a beginner, can refer to.
Table of Contents
Summary
- Chart patterns are nothing but a more straightforward way to understand and predict the market sentiment and use to try and gain returns based on the prevailing conditions.
- The top seven crypto price patterns are
- head and shoulders,
- double/triple top/bottom,
- rising/falling wedge,
- triangles,
- cup and handle flag, and
- rectangle.
- Both reversal and continuation patterns can be put into a trading strategy.
What are Crypto Price Patterns?
As the name suggests, patterns are drawn on the trading chart looking at the digital asset’s price movements (buying/selling).
Some patterns drawn include triangles, flags, wedges, rectangles, etc. These patterns suggest the possible market sentiments, which can further determine the asset’s movement.
In short, price movements are the basis for price patterns. Finally, there are two kinds of price patterns:
- Continuation or Trending Patterns
- Reversal Patterns
Terms Related to Crypto Price Patterns
What is a Continuation or Trending Pattern?
Continuation or trending patterns indicate the past movements to continue in the same direction, thus the name trending or continuation.
What is the Reversal Pattern?
A reversal pattern is the opposite of continuation or trending patterns. The pattern is often drawn when support or resistance is created.
They indicate movement opposite to the trending pattern. For example, if the price movements were falling, the reversal pattern may indicate a rise in price and vice versa.
What is Resistance or High/ Support or Neckline?
Resistance or high is a line formed when there is an increased demand for selling in the market. This results in the downfall of price. This price drop then creates a demand for buying in the market. That’s when support or neckline is shown.
What is a Breakout?
Breakout happens when the asset price moves above the resistance or high or when the asset’s price moves below the support or neckline. In addition, breakouts often indicate a reversal in the movement of price.
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Head and Shoulders Pattern
What are Head and Shoulders Chart Patterns?
This is a legit human body’s head and shoulders. The pattern is formed when there is a rise from a low price position, and then the price again drops to almost the same low price position from where it rose.
The pattern is formed after the final price rise. This is spotted by its three successive tops in the pattern. The price often drops further from the final top point. This indicates a trend reversal.
How to Identify Head and Shoulders?
- At first, there is an uptrend in the price movements, reaching the high(the first or the left shoulder).
- It falls to its support or neckline upon facing the resistance or high. Upon reaching the neckline, the price rises.
- When the price rises, it meets the resistance forming the head(top head).
- The price drops roughly to the position matching the first shoulder or the first top.
However, they do not form horizontal lines. It can be a diagonal or a neckline.
- At this moment, forming the second shoulder or the final top. A market from bullish to bearish is signaled.
The price, in most cases, keeps falling and goes below the neckline or support, indicating the pattern of head and shoulders and the head and shoulder breakout. The shoulders are connected and are believed to be the pattern’s neckline.
Inverted Head and Shoulders Pattern
As the name suggests, this pattern is the reverse of the head and shoulder. The pattern here is drawn upside down. The other head and shoulder pattern type is inverted head and shoulder.
How to Identify Inverted Head and Shoulders Pattern?
- At first, there is a downward trend in the price movements, reaching the neckline or support.
- Upon reaching the neckline, it falls down further and then returns to the neckline, forming the first shoulder.
- Upon touching the support, it falls down further and returns to the neckline, forming the head.
- When the head reaches the neckline, the price falls and reaches a point to form the second shoulder.
- Both shoulders are at the same level. Therefore, a horizontal line is formed.
- When the price falls, it makes the second shoulder, and the price then rises. This mark a bullish market. A breakout of price is seen here.
How To Trade the Head and Shoulders Pattern?
- The trading strategy applied in the head and shoulders pattern is we wait for the second shoulder to go below the neckline. Therefore, we can expect a trend reversal once the price goes below the neckline.
- The trading strategy applied in reversed head and shoulder is we wait for the second shoulder to form and rise above the support. Here we can expect a continuation of the trend.
Note: Multiple patterns are considered when analyzing the market through price patterns. Therefore, the abovementioned strategies are basic examples and should not be taken as trading advice.
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Rising/Falling Wedge Crypto Pattern
What is A Wedge Pattern?
A wedge pattern is a triangular shape with an inclined plane. Both the resistance and support or the trending lines meet at a point. There are two kinds of wedge patterns, rising wedges and falling wedges.
Rising Wedge Crypto Chart Pattern
What is A Rising Wedge Pattern?
A rising wedge pattern is formed when two trend lines, also known as support or resistance, move upward diagonally.
As a result, the volume decreases as it moves upward. This is known as a rising wedge. It is also known as an ascending wedge/ bullish wedge.
How to Identify A Rising Wedge?
- A rising wedge can be seen in both an uptrend and a downtrend.
- Both the high and neckline are converging.
- The volume of price decreases as the lines converge with each other.
- A breakdown is usually seen at the time of converging.
- Higher highs and higher lows are seen between the lines. A rising Wedge can signal both bearish and Bullish market conditions.
Falling Wedge Crypto Price Pattern
What is a Falling Wedge Pattern?
A falling wedge is not something familiar to find on price charts. However, a falling wedge is formed when the buyers are strong and thus pull down the price.
Both the trending lines move downward, prices getting lower and lower. They indicate a bearish market. Falling wedges are also known as descending wedges/ bearish wedges.
How to Identify A Falling Wedge?
- Falling wedges can be seen in both upward and downward trends. However, some say it is often seen in an upward direction.
- The two resistance and support lines move in a downward manner. Therefore, the lines can also be understood as descending lines.
- Lower highs and lower lows are seen between the lines.
- Falling wedges usually signal bearishness.
- Price breakout can be seen before the trend lines converge.
How to Trade a rising/falling wedge?
Applying a trading strategy on rising/falling wedges can be tricky. As the trend may continue or reverse after the breakout. So patience is the key here.
Here, the prime strategy is to read the wedge and wait for the breakout. Then, confirm whether, after the breakout, the price moves in the same direction or the opposite. Accordingly, you can open a sale/buy position.
Double Top/Bottom Chart Patterns
Double Top Chart Patterns
What is Double Top Pattern?
Double top forms two triangles of roughly the same shape. We can also understand the triangles as “M.” Imagine two trend lines drawn over the “M,” and the final fall of the price goes below the support line. This is known as a double top.
How to Identify Double Top Pattern?
- First, the price moves upward and meets the high, forming the first high (first top).
- The price then drops and meets the support.
- Upon meeting the support, the prices rise and form the second high (second top) by meeting the resistance.
- Finally, the price moves below the support line and breaks the uptrend.
- Double top indicates a reversal in trend.
Double Bottom Patterns
What is Double-Bottom Pattern?
The double bottom is the inverse of the top-bottom. They, too, form two triangles between the trend lines of almost the same size.
We can understand the double bottom as “W.” Let us assume two trend lines drawn over the “W”. When the last high of the price goes above the resistance line, this is known as a double top.
How to Identify Double Bottom Pattern?
- At first, the price moves downward and meets the support. The price then rises and meets the resistance forming the first low (first bottom).
- The prices fall and meet the support a second time upon meeting the resistance.
- Finally, the price moves upward from the support line and breaks the downward trend forming the second low (second bottom) by meeting the resistance.
- The price moves above the resistance, confirming a double bottom.
- Double bottom indicates a bullish market by breaking the downward trend.
Double Top/Bottom Trading Strategy
How to trade double top patterns?
When the price movements form a double top, the price moves below the support line. The trading strategy is opening a selling position.
How to trade double bottom pattern?
When the price movements form a double bottom, the price moves above the resistance line. The trading strategy is opening a buying position.
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Triple Top/Bottom Price Patterns
What is Triple Top Pattern?
The triple top is not often seen on price charts. However, we can understand a triple top as a double top. Both patterns resemble each other.
The pattern is the same; the only difference is that it forms one more top. There are three highs seen in the triple top.
How to Identify Triple Top Pattern?
- At first, the price was in an uptrend for a long time, reached the first resistance point, and formed the first high(first top).
- The price then reverses back to the support line, rises again to meet the resistance, and forms the second high(second top).
- The price reverses back to the support line and rises for the final time.
- It falls below the support line upon meeting the resistance for the third time.
- A triple top indicates the reversal in the trend. It signals a bearish market.
Triple Bottom Patterns
What is Triple Bottom Pattern?
The triple bottom is the opposite of the triple top. It signals a bullish market as it is formed in the bear market. We can understand triple bottom and double bottom as they are similar.
How to Identify Triple Bottom Pattern?
- Three consecutive triangles are formed of almost the same size.
- None of the lows breaks the support line, thus triple bottom.
- They are often formed after a downtrend. Hence, a reversal movement is expected, signaling an upward trend after facing the third support.
- The price moves above the resistance line, breaking the downward trend.
- The breaking of the resistance line confirms a triple bottom.
Triple Top/Bottom Trading Strategy
1. How to trade triple top patterns?
The trading strategy applied in the triple top is opening a sell position since the price movements go below the support line.
2. How to trade triple bottom pattern?
The trading strategy applied in the triple bottom is opening a buy position since the price movements go above the resistance line.
Cup and Handle Crypto Price Pattern
What is Cup and Handle Pattern?
As the name suggests, the pattern can be understood as a cup and its handle. The pattern follows the shape of a cup resembling “U”. It is not the most reliable pattern as predictions can be tricky and go wrong.
However, the pattern seems to start in a bearish market. And on meeting the handle, there is a breakout, and an uptrend can be expected.
How to Identify Cup and Handle Pattern?
- The price patterns form a “U” shape, starting in a bearish market.
- While forming the depth of “U,” the price does not go very low.
- The handle starts forming at the cup’s mid-top or “U.”
- Breakout can be seen at or before the handle formation.
- The reversal of a bearish market is signaled.
How To Trade Cup and Handle Chart Pattern?
- Wait for the breakout, and then place the order.
- Closely read the depth of “U” and apply the best-suited strategy. For example, stop loss.
- Analyze the distance between the bottom of the cup and the handle. Accordingly, predict the profit. The profit may go above the distance calculated.
Ascending/Descending Triangle Pattern
What is Ascending Triangle Pattern?
Two or more ascending or equal triangles are formed during an uptrend. The resistance line is horizontal, while the support is an ascending line. These lines meet, signaling the continuation of the uptrend or bullish market.
How to Identify Ascending Triangle Pattern?
- The price patterns start forming triangles of two or three equal highs.
- The resistance line now formed is horizontal.
- The support line formed is an ascending line. The ascending triangles can be seen between the lines.
- Both the resistance and support line meet.
- The pattern is confirmed when a breakout is seen before the ascending line meets the resistance level.
- The breakout is when the price pattern moves above the resistance line.
What is Descending Triangle Pattern?
The descending triangle is the opposite of an ascending triangle. The triangles formed here are of low peaks.
The pattern can be understood when the support line is horizontal and the resistance line is a descending line.
The pattern usually forms a downward trend signaling the continuation of the movement.
How to Identify Descending Triangle Pattern?
- The descending triangle can be expected when the price keeps falling.
- Two or more low peak triangles are formed, with the support line being horizontal.
- The price keeps reversing from resistance to support, forming the low peaks of the descending triangles as the resistance level keeps decreasing.
- Both the resistance and support line meet.
- Finally, the price falls below the support line before the lines meet.
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Ascending/Descending Triangle Trading Strategy
1. How to trade ascending triangles?
With an ascending triangle placing the orders after the breakout would be a good choice as the volume increases.
2. How to trade descending triangles?
With a descending triangle placing the selling order when the price breakouts would be beneficial.
Bullish/Bearish Flag Crypto Price Patterns
What is a Bullish Flag?
The bullish flag is the most common crypto pattern that can be seen. The bullish flag is formed in an uptrend and signals for a continuation.
The flag is formed only to continue the uptrend price patterns. The bullish flag is also known as the bull flag.
How to Identify a Bullish Flag?
- The bullish flag can be expected in an uptrend, where the price keeps moving up.
- While moving up, the price movement meets its first resistance.
- Upon meeting the resistance, the price movement starts forming diagonal lines.
- The resistance and support lines form a rectangle.
- The bullish flag is confirmed when the price movement goes above the resistance line of the flag.
What is a Bearish Flag?
The bearish flag is the opposite of a bullish flag. The bear flag pattern can be seen as an upside-down bullish flag pattern.
The bearish flag can be seen in the downtrend and indicates a continuation of the trend.
How to Identify a Bearish Flag Pattern?
- Identifying a bearish flag is the same as a bullish flag. However, the prime difference is that the bearish flag is formed during a downward trend.
- The downward trend meets its first support point marking the inverted flag pole.
- The price movement starts forming the diagonals of triangles between the resistance and support lines.
- The triangles are of higher lows and higher highs.
- Finally, the price movement breaks the support line and continues the downward trend.
Bullish/Bearish Flag Trading Strategy
1. How to Trade a Bullish Flag?
We can start placing orders after confirming the breakout. Placing a buy order is the typical strategy applied.
2. How to Trade a Bearish Flag?
Similar to the bullish flag, we wait for the breakout. These flags are a continuation pattern; hence waiting for the breakout is best. Again, placing a sell order is the chosen strategy.
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Rectangles Pattern
What is A Rectangle Pattern?
A rectangle pattern is a pause in the trend. Both the resistance and support lines are almost horizontal and parallel.
The rectangle pattern also indicates a continuation of the trend in the original direction. Be it upward or downward. For upward movement, the triangle is bullish, while it is known as a bearish rectangle for downward.
How to Identify A Bullish/Bearish Rectangle Pattern?
- The bullish rectangle is identified when the price moves upward after breaking the resistance line of the rectangle formed.
- The bearish rectangle is identified when the price moves downward, continuing the downward trend. The pattern is completed when the price moves below the support line.
How to trade rectangle patterns?
Wait for the price breakout, and then place orders. Then, sell orders when the price goes below the support line and vice versa.
Conclusion
Amidst the volatility of the crypto market, the chart patterns give you stability. The top seven crypto chart patterns are some of the most common patterns in the trading chart.
For a successful trading experience, it is essential to do the followings: Identify the chart patterns and read and analyze the chart patterns.
However, the market is entirely driven by human emotions and sentiments; hence, no chart pattern or trading strategy can predict the outcome.
Therefore, apart from only being dependent on price patterns, do a long-term fundamental analysis of the crypto you’re about to buy.
How to read crypto charts?
You can read crypto charts by understanding different chart patterns like bullish chart patterns, bearish chart patterns, triangles, rectangles, and others. But understanding chart patterns can sound daunting. However, starting with basic chart patterns can be a good start.
How to find crypto breakouts?
Crypto breakouts can be seen when the price moves above the resistance or below the support line.
Is the double bottom pattern bearish?
No, the double bottom pattern signals a bullish market.
How to read crypto charts?
You can read crypto charts by understanding different chart patterns like bullish chart patterns, bearish chart patterns, triangles, rectangles, and others. But understanding chart patterns can sound daunting. However, starting with basic chart patterns can be a good start.
How to find crypto breakouts?
Crypto breakouts can be seen when the price moves above the resistance or below the support line.
Is the double-bottom pattern bearish?
No, the double bottom pattern signals a bullish market.
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