If any trader dealing in cryptos is trying to explore new business possibilities, then it becomes highly significant to appropriately use a perfect combination of technical indicators and chart patterns. If you read the Tweezer Bottom candlestick pattern blog, you will get to know about the essential technical patterns that can boost your technical analysis while you are investing in cryptocurrencies.
Where technical indicators give a thorough idea of statistics, chart patterns explain the complete market psychology with the help of its price action. Since this is a subjective matter, traders find it more difficult to master when compared to technical indicators.
Continue reading if you want to know what chart patterns mean, different types of crypto chart patterns, and the best strategies to use while trading in cryptocurrency.
What is Meant by Chart Patterns?
Chart Patterns are nothing but normal price patterns which are shown through a chart. At first, the movements of these prices may seem random. However, it’s not like that. All the businesspersons look closely at these series of patterns to observe the market holistically.
They complement their assessment with other forms of technical analysis also, which include candlestick patterns or technical indicators, so that they can make better trading decisions.
Top 7 Crypto Chart Patterns
Though there exist more than hundreds of different chart patterns, only some of them can survive throughout time. Because the topic of chart patterns is subjective, there are not any specific crypto patterns that can be proved as better than others.
Since we are discussing crypto chart patterns, if you are searching for an amazing platform, then you will be glad to know that the 3 bar play trading pattern is a common trading chart pattern among cryptocurrency traders. Try using it, and you will realize why it is extensively used by the majority of cryptocurrency traders.
Now as I mentioned that some of the cryptocurrencies had marked their identity from the test of time. Therefore, below is the list of those handfuls of chart patterns:
- Head & Shoulders
- Price Channels
- Rising Wedge & Falling Wedge
- Ascending Triangle & Descending Triangle
- Triple & Double Top & Bottom
- Bullish and Bearish Flag
- Channel Down & Channel Up
Head & Shoulders
This specific one, Head & Shoulders, is a slightly advanced chart pattern that is followed by a temporary high or low, then a bigger higher or lower move, and at last with the third higher or lower move, which is the same as the first move. If you see its pattern, it will appear as a single head with two shoulders whose position can be either upside down or right side up.
To build price channels and crypto chart patterns, two increasing, decreasing, or horizontal parallel lines are created, showing a series of highs and lows. Lower means the areas of support, and higher implies resistance.
Prices fluctuate between these two ends. Most of the agents buy the cryptos at the lower period and tend to sell during the higher time. While buying and selling cryptos, coming of breakouts or breakdowns can bring in crucial moves and thus they can’t be ignored even while trading in cryptocurrencies.
Rising Wedge & Falling Wedge
The crypto pattern of this particular type is almost similar to ascending and descending triangles, except the one thing is that the higher and lower lines are inclined in the same direction. Besides, Rising wedge & falling wedges are reversal patterns wherein the rising wedge is considered the bearish signal, and the falling wedge is known as the bullish signal.
Ascending Triangle & Descending Triangle
Herein, increasing and decreasing triangles are formed with two additional lines:
- the horizontal trend line that connects highs or lows
- Another sloped trend line that connects highs or falling lows
The final right triangle results in a decision point where the price can either break out or break down towards the sloped line from the horizontal line.
Triple & Double Top & Bottom
Sometimes the market also bounces off the same resistance through either the top or bottom level two or three times continuously. If such is the case, then it is called a triple or double top and bottom cryptocurrency chart pattern.
Its bullish position is called double bottom and a bearish signal is known as a double top. Both triple and double patterns are reversed forms of settings, which indicate that different price patterns can influence the direction.
If you talk of the more prevalent cryptograph patterns, then it is double tops and bottoms, however, triple patterns are the best as they generate huge reversals frequently.
Bullish And Bearish Flag
These are those crypto patterns that include small rectangular trading. It remains within the diagonal parallel lines for a temporary period and acts against the dominant price for a longer period. It usually occurs after an immediate gain or loss and thus indicates a little change in trend frequently before the preceding trend returns.
The two examples are Bullish flags and bearish flags. They are popularly known as flag patterns. Several traders consider this crypto pattern as the most reliable.
Channel Down & Channel Up
This type of crypto pattern is diagonal parallel lines of exchange range. When an uptrend or decline crosses parallel support and resistance lines, this crypto pattern is formed. It results in either a potential trend reversal or a change in the current trend’s slope.
If any trader is following this crypto pattern, then as a first step, he/she observes the price swings and they infer that a specific price can stay there, then the trader initiates the trade. It’s suggested to start trading when the channel’s trend lines are crossed by price. It can cross with complete patterns either on the upper or lower side. If this happens, the price may increase drastically in the breakout’s direction.
Best Ways of Trading In Cryptocurrency
To assess the psychology of the market, cryptocurrency chart patterns are considered the most helpful tools. However, it’s also true that these are subjective instead of technical indicators.
In other words, you can also say that there doesn’t exist any standard definition about how many parallels the shoulders should remain on a head and shoulder pattern or at what point in time the price shall break out from an increasing triangle.
If you are wondering how this can be decided then it’s completely dependent on the trader who defines his shapes. Below briefly explained are the best ways of trading in cryptocurrency:
Through this strategy, traders take their positions and exit on the same day. The aim is to earn profits amidst fluctuating price movements.
This includes using highly increased trading volumes to earn profit. Though this strategy involves risk, an efficacious trader knows how to maintain margin requirements to avoid a bad trading experience.
It requires analysis of the crypto asset, volumes, and past trends, and selecting any entry and exit point in one single day only.
Build A Balanced Portfolio
To build a balanced portfolio, you should maintain a fixed amount of continuous investments in multiple cryptos such as Bitcoin, Dogecoin, Ethereum, and many more.
In this way, the amount of risk involved increases gradually in a systematic manner only. Thus, it creates your portfolio and you earn higher returns in the long term.
This is one of the most important strategies as it precedes selecting any other strategy. You must keep yourself updated with the news relevant to the crypto industry, assess your finance and form an investment goal accordingly.
This strategy involves buying crypto in a market and then selling it in another to book a profit. The trader should open account accounts on exchanges that show the differences between the price you bought and the one you are trading at.
Dollar Cost Averaging
DCA demands from a trader to invest any specific amount at regular intervals. Traders need to study the current market trend and understand it in depth at an appropriate time.
From the above article, it is concluded that traders can access insights into market psychology through chart patterns. However, always keep in mind that they shouldn’t be the single tool to your aid when you are trading in cryptos. It’s equally important to deeply understand the technical indicators also, which you can never get through chart patterns.
Studying technical indicators gives a complete overview of market dynamics so that you can achieve the desired results. Besides, don’t forget to pay attention to the strategy you choose while trading in cryptos. The more effective your strategy, the more chances you will have to earn profits.