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Are you looking to take your crypto trading to the next level? Understanding chart patterns is crucial for success in the crypto market. Chart patterns, such as flags, pennants, head and shoulders, and double tops and bottoms, can provide valuable insights into the potential future behavior of the market and help traders make informed decisions. In this guide, we will be discussing the different types of continuation and reversal patterns that can be found in the charts of cryptocurrencies.
Tip: On exchanges like Binance & Okx.com, the charting software makes it easy to spot patterns. Enable the Tradingview option for this.
For spotting a trend Reversal, we use Technical Analysis: Reversal Patterns
We will discuss the different reversal patterns in crypto chart analysis and give some examples in form of images.
Double Tops and Bottoms
Double Tops and Bottoms are reversal patterns that are characterized by two consecutive peaks or troughs at roughly the same price level, with a moderate trough or peak in between. A double top pattern is considered a bearish reversal pattern and suggests that the price will drop after the formation of the second top, while a double bottom pattern is considered a bullish reversal pattern and suggests that the price will rise after the formation of the second bottom.
Three tops
Head & Shoulders pattern(s)
The Head and Shoulders pattern is a reversal pattern that is characterized by a peak, followed by a higher peak, and then a lower peak (the “head”), with the last peak resembling a “shoulder”. The Head and Shoulders pattern is considered a bearish reversal pattern and suggests that the price will decrease after the formation of the right shoulder.
Falling Wedge
A Falling Wedge is a bullish reversal pattern that is characterized by a downward sloping trendline and a lower support line that come together to form a wedge shape. The pattern suggests that the price will break out above the resistance level after a period of consolidation. This pattern is the opposite of the Rising Wedge pattern, which is bearish.
An example of a Falling Wedge in practice is the price of Bitcoin Cash in June 2019. The price formed a downward sloping trendline and a lower support line, creating a wedge shape. This pattern suggested that the price would break out above the resistance level, which it did.
Double Bottom
A double bottom pattern is considered a bullish reversal pattern and suggests that the price will increase after the formation of the second bottom.
Inverse Head & Shoulders chart patterns
An Inverse Head and Shoulders pattern is a bullish reversal pattern that is characterized by a trough, followed by a lower trough, and then a higher trough (the “head”), with the last trough resembling a “shoulder”. The Inverse Head and Shoulders pattern suggests that the price will increase after the formation of the right shoulder. This pattern is the opposite of the regular Head and Shoulders pattern, which is bearish.
An example of an Inverse Head and Shoulders pattern in practice is the price of Litecoin in December 2018. The price reached a trough at around $20, then a lower trough at $15 and finally a higher trough at $22. This pattern suggested that the price would likely increase, which it did.
Inverted head and shoulder patterns show a trend reversal. Now the price will fall back into the old consolidation zone. After this, a trend in consolidation continues or an up-trend emerges.
W Pattern
The W pattern is a powerful reversal pattern that is characterized by a series of bottoms and peaks that form a W-shape. The first part of the pattern is a decline, followed by a short increase, a second decline, and a second increase that is higher than the first increase. This second increase suggests that the trend could reverse.
An example of a real-world W pattern is the price of Bitcoin in March 2019. The price fell from around $4,200 to $3,500, followed by a brief rise to $4,000, a second drop to $3,600, and a second rise to $4,200. This pattern suggested that the price was likely to rise, as it did.
Bump and Run patterns
Bump and Run is a bearish reversal pattern that is characterized by a sharp price increase followed by a period of consolidation, after which a clear decline takes place. The pattern suggests that the price is likely to continue to decline after the consolidation period.
An example of a real-life Bump and Run is the price of Ethereum in June 2017. The price surged to about $420, followed by a period of consolidation. Subsequently, a clear decline occurred, suggesting that the price was likely to continue falling, as it did.
This article is also available in Dutch – Dit artikel is er ook Nederlands
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