Top Chart Patterns

Crypto chart patterns constitute an important part of technical analysis. But to be used effectively for crypto trading, they require some knowledge. Here, we will check the main chart patterns that a trader should know.

What crypto patterns are

Crypto patterns are formations and trends that are used in technical analysis to measure possible movements of a crypto asset. It is needed to understand patterns if you want to learn how crypto trading works.

The most popular crypto trading patterns are the following.

Head and Shoulder Pattern

The Head and Shoulders crypto pattern is formed by a large peak with smaller peaks on both sides. When the chart is formed, it means that the cryptocurrency market may have a bearish reversal.

Even though two side peaks are smaller than a central peak, they all have the same support level. It is called a neckline. 

When the third peak falls on the support level again, traders expect a bearish reversal.

Inverse Head and Shoulder

Imagine three peaks in a row: the one in the middle is the lowest, while the ones on each side are higher and about the same size. This pattern usually shows up after prices have been dropping for a while and often suggests that things might start looking up soon (going from bad to good).

 Just sit tight until you see this pattern finish up and the price jumps up past a certain level (that's the neckline). Once it happens, you can buy the asset.

Channel Up and Channel Down

Imagine two slanted lines running side by side, like two slopes. When the price keeps bouncing back and forth between these lines, that's what we call a trading range. This happens when the price is going up or down, staying within those lines. It could mean the trend might turn around, or it could just mean the trend's angle might change.

When new patterns are forming, traders who think the price will stay within a certain range can start trading when the price goes up and down within that range marked by trendlines.

Once patterns are fully formed (like when there's a breakout), you can start trading when the price breaks past the trend lines of the range, either above or below. When this happens, the price can quickly shoot off in the direction of that breakout.

Double Top 

Double Top is another pattern that signals a crypto market trend reversal. The asset climbs to a peak, then drops again to the support level, then climbs again for a while before reversing back and continuing the bearish trend.

Double Bottom Crypto Chart Pattern

A double bottom indicates that traders are selling the asset, which causes the asset price to drop. The double bottom is formed when the price drops below the support level, then rises to the resistance level and finally drops again.

This price chart signals the market reversal and the start of a bullish trend.

Rounding Bottom

The Rounding Bottom chart shows the continuation of a trend or its reversal. 

As an example, during a bullish trend, when the asset price drops, the formation of a Rounding Bottom chart may indicate that after the drop, the price will grow again and will continue the bullish trend.

Cup and Handle Pattern

The Cup and Handle pattern is formed during a bullish trend and signals the trend continuation. So, it is a bullish chart pattern. This pattern usually shows a slight bearish sentiment during a bullish trend, but eventually, the trend continues. The cup looks similar to the Rounding Bottom chart, and the Handle looks like a Wedge pattern that will be explained further.

After the Rounding Bottom, the asset price enters into a retracement stage which is known as a handle. After that, the asset continues its bullish movement.

Wedge pattern (a Rising Wedge, a Falling Wedge)

A Wedge chart pattern can be of two types: falling and rising. A Rising Wedge is formed by the price movement caught between the support and resistance lines, with the support line being steeper than the resistance line. The Rising Wedge signals that the asset price is going to decline as soon as it breaks the support level.

A Falling Wedge is formed when the price is trapped between the support and resistance levels but this time, the trend is falling, the resistance line is steeper than the support line. 

This chart indicates that the asset price will eventually rise as soon as it breaks the resistance level.

Both Falling and Rising Wedges are reversal patterns. The Falling Wedge represents a bullish market and is a bullish reversal pattern, and the Rising Wedge represents a bearish market and is a bearish reversal pattern.

Pennant pattern, or Flag pattern

A Pennant pattern or it is also called a Flag pattern, is formed when the asset price experiences a period of growth, with a consolidation afterward. There is a significant increase in the price during the early stages of a trend. Then, the price enters in a series of smaller movements. This is how the Pennant is formed. A Pennant can be either bullish or bearish. In the example, a bullish Pennant is shown - the asset price continues its bullish movement.

The Pennant pattern can look like the Wedges trading patterns, but the Pennant can be wider than a wedge. Also, a wedge is descending or ascending, while a Pennant is horizontal.

Ascending Triangle pattern to trade crypto

The Ascending Triangle is a bullish continuation chart. It signals the continuation of a bullish trend. This chart can be built by drawing lines along the resistance and the support levels. 

Normally, the resistance level is formed by two or more similar peaks that allow for drawing a horizontal line.

Descending Triangle For Crypto Trading

A Descending triangle signals the continuation of a downtrend. It is a continuation pattern.

Normally, this pattern shifts downwards and breaks the support level, which indicates that sellers rule the market. So, lower peaks are not likely to reverse soon.

A descending triangle can be formed by drawing lines along the resistance and support levels, but this time, the support line is a horizontal line, and the resistance line is descending.

Symmetrical Triangle Trading Pattern

The Symmetrical Triangle pattern is one of the continuation trading chart patterns, so it signals the continuation of either a bullish or a bearish trend. It means that the market will continue the trend which it is when the chart is formed.

A Symmetrical Triangle is formed when the price has several peaks or drops. For example, in the image, the pattern shows a bearish trend, but the Symmetrical Triangle shows a short period of upward movements. 

One shall remember though, that if there was no clear trend when the pattern was formed, the market can start moving in either direction.

Rectangle

The rectangle pattern shows a time when the price kind of takes a break from its usual trend and moves sideways. It happens between two lines that act like walls, one supporting the price and the other resisting it. Usually, this means the price is just catching its breath before getting back to doing what it was doing before (either going up or down).

For someone who swings trades, they might buy when the price hits the support and sell when it hits the resistance. But for someone who likes to ride trends, they'll wait until the price breaks out in the original direction of the trend. Then, if it closes a candle below or above the support or resistance line (depending on which way the trend is going), that's when they jump in.

Along with cryptocurrency chart patterns, consider other indicators

The explained chart patterns can help you to understand what to expect from the market in the near future, make informed trading decisions, and build profitable trading strategies. But to trade profitably, you need to combine these patterns with other technical indicators. Also, it is worth remembering that it is important to consider not only price movements but also the trading volume of an asset.