This helps users to understand the market better and make informed decisions which helps them to cut their losses and earn more profit, as compared to users who trade merely on guess work.
Though there are many chart patterns which you can follow to trade in crypto. But there are a few common chart patterns that are popular among traders.
Let’s check the top three most common chart patterns below.
Head & Shoulders
It is a unique chart pattern that signals a change in trend of the market from bullish to bearish. The pattern appears as a baseline with three peaks, the center peak being the highest and the outside two peaks (left shoulder & right shoulder) being relatively close in height.
The head and shoulders pattern appears when the price of a stock increases to its top and then drops back to where it started its uptrend.
The price then increases above the previous high to create the head before falling back to the initial base.
Finally, the crypto price experiences a second peak at a level close to the formation’s first peak before declining once more.
One of the most effective patterns for trend reversal is the head and shoulder formation.
It is one of the top designs that, to varied degrees, indicate the end of an upward trend.
A double bottom pattern is a well-known technical analysis charting structure that denotes a significant shift in trend and a change in momentum following a previous downward market trading movement.
It represents a security or index dropping, rebounding, dropping again to the same or a comparable level, and then rebounding once again (that may become a new uptrend).
The double bottom resembles the letter ‘W’ in shape. The low that was twice struck is now seen as a crucial support level. The upswing has fresh possibilities as long as those two lows hold.
A conservative interpretation of the pattern shows that the minimum-move price goal is equal to the separation between the intermediate high and the two lows in terms of profit targets.
When a price can’t appear to break a certain level, known as a ‘resistance level,’ the bottoms are formed. Some individuals search for double bottoms after a substantial slump because, in theory, they are thought to be patterns that signal a trend reversal.
A flag pattern, in technical analysis, is a price chart characterized by a sharp countertrend (the flag) succeeding a short-lived trend (the flagpole).
The trend continuation pattern that enables users to trade while a trend is still in progress.
It happens when a significant trend of crypto asset price movement up or down abruptly ends.
The price then fluctuates roughly sideways within a constrained range, frequently moving slowly against the original trend.
The design now has a sloping, rectangular form that resembles a flag thanks to two trend lines that mark the top and bottom of that range.
Once the price exits the flag and resumes its initial, strong trend, you have the opportunity to join that trend at a somewhat lower cost than before the flag appeared.
There are bullish and bearish iterations of the Flag, as with most patterns.
When a price that has been rapidly trending abruptly stops and gently retraces in a rectangle range, the Flag pattern is formed.
Then it breaks through that range and keeps moving in the same direction, offering you the chance to enter the second half of a trend at a more advantageous price than it was before to the flag forming.