A Beginner’s Guide to Crypto Chart Patterns and Cheat Sheet

Now, let’s go through the main types of candlestick patterns to learn how to detect and read them on crypto charts. Following the instructions I told you about throughout the article, you can easily analyze crypto chart patterns through patience and careful observations. A head and shoulders pattern is a specific chart formation which helps predict a bullish to a bearish trend reversal. This pattern appears as a baseline with three peaks where the outside two are close in height, and the middle is highest. This pattern is among the most common chart patterns used to identify the possible continuation of the previous trend from the point at which the price drifted in that same direction.

• The best use crypto chart patterns to inform their trades, create a trading strategy and stick to it — despite the losses.
• All examples listed in this article are for informational purposes only.
• In addition, there should be a small gap between the opening and closing price of both candles.
• In simple words, this pattern comes at the end of a downward trend and has three bottoms at a similar level.
• Crypto trading patterns are chart formations of the price action of an asset.

Like a doji, this candlestick has a long wick relative to its short body in the middle, resembling a spinning top. Unlike a doji, its body is small but still visible, indicating a slight change in price between opening and closing times, with wide fluctuations in between. As crypto is traded 24 hours a day, unlike the stock market, the opening and closing prices usually refer to the start and end of the day. These candlesticks shouldn’t have long lower wicks, which indicates that continuous buying pressure is driving the price higher. The size of the candlesticks and the length of the wicks can be interpreted as chances of a continuation or a possible retracement. A hammer is a candlestick with a long lower wick at the bottom of a downtrend, where the lower wick is at least twice the size of the body.

Support / Resistance

Typically, it is created at the end of an uptrend with a long lower wick and small body. This pattern reveals that the uptrend has weakened, and traders consider it a sell signal. The Morning Star pattern is formed by three separate candles at the bottom of a downtrend. The first bearish candle is quite long, while the second – known as the star – has lengthy wicks with a short body. However, the third candle shifts bullish closes directly above the first’s midpoint. Traders use candlestick charts to represent an asset’s price evolution.

When the handle is complete, the price may break out to new lows and resume its downward trend. In a rising market (left), the cup pattern should be in the shape of a “U.” The handle appears as a short pullback on the right side of the cup. When the handle is finished, the price may break out to new highs and resume its upward trend. A flagpole forms on the right side of the pennant in a bearish pattern. The pattern is called “inverse” because it is the opposite of the traditional head and shoulders pattern, which is a bearish reversal pattern that is formed after an uptrend. The infamous head-and-shoulders pattern is a bearish reversal pattern that signals to traders that there’s been a particular change in the current trend.

Inverse Head and Shoulders

Proficient traders worldwide use a combination of technical indicators and chart patterns aiding them to ace the crypto market with hefty profits. In either an uptrend or downtrend, the first point in this pattern (1) forms the first support level and also the lowest point in the pattern. As the price reverses, the first resistance level (2) is set and is also the lowest resistance level in the pattern.

• Whereas bearish candlestick patterns are seen at the end of an uptrend.
• The price again reverses and finds its resistance at a lower level than before (4), forming the descending angle of the triangle.
• On most crypto charts, a green candle indicates a bullish move or a price increase, while a red candle shows a bearish move or a price decrease.
• The first type of trade opportunity is when the price has bounced off a key level and moved away, and is now yet again approaching that level.

On the other hand, a falling market that forms an inverse head and shoulders is more likely to experience an upward trend reversal. Symmetrical triangles form when two trend lines intersect toward each other and indicate that a breakout is likely. With trading patterns, traders have – to do many small trades, instead of few big trades. Patterns like ascending or descending triangle, channel up or down, resistance break and approach….these have about 70% success rates. So traders need to do a hundred trades for these statistics (success rates) to work out.

The Failure Swing Trading Crypto Chart Pattern

The lower wick indicates that there was a big sell-off, but the bulls managed to regain control and drive the price higher. With this in mind, the sell-off after a long uptrend can act as a warning that the bulls may soon lose momentum in the market. The three white soldiers pattern consists of three consecutive green candlesticks that all open within the body of the previous candle and close above the previous candle’s high. Of course, other traders may ‘buy the dip’, deciding to make anti-cyclical moves by buying more when prices drop if they expect a later increase. Cryptocurrency exchanges typically show an always-updating price chart for any particular trading pair. Most often, the trading pair consists of the user’s desired cryptocurrency paired with USD.

• Wicks simply depict the difference between opening/closing prices and highest/lowest prices achieved during the specified period.
• Like with reversal patterns, trading trend continuation patterns can be applied to both bullish and bearish situations.
• The price reverses and finds its second support (3) at a similar level to the first resistance (1).
• Crypto traders prefer candlestick charts because of how easy it is to understand and its visual appeal.

The rectangle pattern is a slight variation of the triangle trading technique. Rectangle pattern trading is done within a trend, where the price remains between two horizontal support and resistance lines. Just like the triangle patterns, the rectangle chart pattern predicts a continuation of the previous trend, bullish or bearish. Finally, we have the symmetrical triangle pattern, which is a bullish or bearish continuation pattern, depending on the trend it is confirming. If it originates from a bullish trend, a symmetrical triangle will most likely give a buy/long signal. If, on the other hand, the symmetrical triangle chart pattern comes from a bearish trend, it will usually give a sell/shorting signal on a breakout.

Technical Analysis

Chart patterns tend to form more frequently in volatile markets when crypto trading activity is high. If prices break above the resistance or below the support at any point, the pattern is considered negated and a price continuation will likely occur instead of a reversal. Learning and recognizing patterns on price charts can help you make sense of wild crypto price fluctuations. Trading patterns are developed over time through constant observation.

• A bullish pattern generally indicates future positive price movement for an asset, which may incite a trader to buy in anticipation that the token will increase in value.
• Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction.
• Immediately after, buyers began gaining momentum, hence the long lower wick.
• The hanging man candlestick pattern is actually the bearish alternative to the hammer pattern covered just above.

Now that you have looked at both bearish and bullish chart patterns, Symmetrical triangle patterns, on the other hand, are considered continuation patterns that are aimless in direction. The downtrend in the chart above meets – the first support at 2 which causes the price to rise until a resistance forms at 3. A pennant flag formation appears as the market bounces between increasingly lower resistance and increasingly higher support points.

TOP 20 TRADING PATTERNS [cheat sheet]

The reason for that is that the hammer chart pattern is very easy to spot and use. Typically, bullish hammer candlesticks are found at the bottom of a market downtrend. Over time, individual candlesticks form day trading patterns or reversal patterns. A rectangle chart pattern also consists of two horizontal trend lines, but unlike the triangle chart patterns, they are almost parallel to each other. The significance of this pattern is that it suggests a period of consolidation in a trend has occurred, and that a breakout is imminent.

• This pattern was first described by William J. O’Neil in this 1988 classic book on technical analysis, ‘How to Make Money in Stocks’.
• In this instance, we will be using trend lines to draw our trading patterns.
• As the price reverses and moves downward, it finds the second resistance (4), which can be higher or lower than the first resistance (2).
• It looks like a right triangle with the top horizontal line sloping downwards, and the prices tend to form lower highs and bounce off this line.

The good news is you don’t necessarily need to have a great deal 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 immediate edge levels to identify where prices might be heading next. You can learn to read crypto chart patterns by using services live trading charts. On exchanges like OKX, you can use demo trading to practice using trading patterns.

Inverted hammer

The price reverses direction and finds its support slightly higher than before (4). This shooting start denotes a price rejection immediately after a substantial rise. This pattern shows that the downtrend pressure is decreasing and beginning to shift into an uptrend. This pattern reveals that though the start is bearish, buying pressure surges during the course of the second candle. This means that Bulls have a considerable interest in buying at the prevailing price. Wicks simply depict the difference between opening/closing prices and highest/lowest prices achieved during the specified period.

• We’ll also provide a cheat sheet that you can keep handy while you trade.
• They appear as three consecutive peaks (top reversal, left image) or three consecutive troughs (inverse head and shoulders, right image).
• The moment you have assimilated which are the best crypto trading patterns to watch for, you can correlate these findings on day trading stocks.
• In a downtrend, the price finds its first support (1) which will form the basis for a horizontal line that will be the support level for the rest of the pattern.
• However, it can give either a bullish or a bearish signal — it all depends on what point of the cycle it is seen in.

A shooting star has a short body at the bottom with little to no wick, plus a long wick at the top, as if it’s a star that leaves a trail while descending. When these candlesticks are placed one after the other, they form a chart that indicates a succession of historical price movements for the asset. While candlestick patterns can provide valuable insights, they should be used with other technical indicators to form more well-rounded projections. Some examples of indicators that can be used in combination with candlestick patterns include moving averages, RSI, and MACD. On most crypto charts, a green candle indicates a bullish move or a price increase, while a red candle shows a bearish move or a price decrease.

Inverted Hammer Candlestick

A triple bottom also happens when a downtrend reaches a support level and reverses back up to meet a resistance level. This sequence repeats itself two more times before breaking above the resistance to initiate a bullish trend. Triple patterns are less common than double patterns, but they produce better price reversals. Pattern Trading is an integral part of technical analysis and is widely popular in the crypto trading community. Identifying and trading these patterns will help you make huge profits, but you should make sure to follow all the rules without fail. The best use crypto chart patterns to inform their trades, create a trading strategy and stick to it — despite the losses.

• This crypto chart pattern typically occurs right before a trend reversal.
• A solid technical analysis is the use of chart patterns and effective indicators like the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI).
• Actually, in our case, it’s a triple bottom, which works exactly like the double bottom pattern.

Conversely, a bearish wedge (angled up) represents a brief interruption during a downtrend or uptrend. Price channels allow a trader to monitor and speculate on the current market trend. They are made by connecting highs and lows with two parallel ascending, descending, or horizontal lines. The parallel lines are areas of resistance (higher) and support (lower).

Crypto Chart Patterns for Trading

Traders use them to recognize turning points and strong reversals that could indicate buying or selling opportunities in the market. As discussed in our previous article about how to read a crypto chart, the candlestick indicates the price movement of a crypto asset over a specific time period. Traders should always practice risk management techniques, such as setting stop-loss orders, to protect their capital. It’s also important to avoid overtrading and only enter trades with a favorable risk-reward ratio. While many candlestick patterns include price gaps, patterns based on this type of gap aren’t prevalent in the crypto market as trading takes place around the clock.

• The double-top pattern is one of the most recognizable and common charting patterns traders use to determine a change in a current trend.
• Hopefully, by the end of this article, you’ll feel like a pro at spotting chart patterns.
• A double bottom is a chart pattern that, as can be seen from its name, is the opposite of the double top.
• The price reverses direction and in short increments and price reversals, finds its support (2), the lowest point in the pattern and forming the bottom of the cup.

There are several ways of approaching trading the cup and handle, one of which is to enter a long position. Start by placing a stop buy order slightly above the upper trend line of the handle. Trading cryptocurrencies can be very risky, particularly due to the volatile nature of the market. That is why traders, especially novice traders, are always recommended to maintain adequate risk management. The price reverses and moves downward, it finds the second support (3), forming the (inverted) head, which must be lower than the first support (1). The price reverses and moves downward until it finds the second support (4), near to the same price of the first support (2) completing the head formation.