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4 Main Chart Patterns in Crypto Trading

CoinExpert

CoinExpert

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Jun 17, 2018
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Stock chart patterns are one of the best tools for a trader, which allows you to accurately determine the further movement of an asset's price. Thus, the accuracy of the classical pattern "Head and shoulders" is more than 80% — few indicators can show the same result. In this article we will consider four figures that occur on price charts and are applicable in the crypto currency markets.

Head & shoulders Pattern

Let's start with the classical Head and Shoulders pattern. Usually, the appearance of this figure signals changes in the market, because, in fact, Head and Shoulders model occurs when the growing trend makes an unsuccessful attempt to move higher. As we know, the uptrend is defined as a series of higher highs and higher lows, but in the case of the head & shoulder, the last wave of the trend does not generate yet another higher high and low, and a new downtrend begins.
h-s-jpg.113

The opposite figure, called "Inverse head & shoulders" signals a transition from a downtrend to an uptrend. "Head and shoulders" is a very popular pattern, since its logic is based on a simple trend trading. It is usually considered to be the most reliable pattern in trading. It is easier to detect it on a simple linear chart, since candlestick charts provide too much unnecessary information.

Bull flag

Bull flag patter, also called a pennant or a wedge, is also considered one of the most reliable bullish patterns. The bull flag appears when price enters a consolidation phase following a strong uptrend. What really happens when price is consolidating is that the market is gathering momentum for the next burst up. It is a natural part of a trend where those who have been with the trend from the beginning use the opportunity to realize some of their profits, while new traders come to the market and positioning themselves for the next run-up in prices.
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Cup and Handle

The cup and handle pattern was first described in William O’Neil’s book How to Make Money in Stocks.This bullish chart pattern is very well-known in the stock market and seems to work well in other markets. According to O'Neill, the pattern should cover a period of 1 to 6 months. In crypto market, where everything changes faster, this period can be cut in half. In the ideal case, for the pattern to be more reliable, at the end of the "handle" the trading volume must grow with the price. A purchase order should be entered as price breaks above the high made by the right side of the cup. The logic behind the pattern is the same as for the head & shoulder and trend waves: the "cup" is the bottom, and the "handle" is a new, higher minimum, which means the beginning of the uptrend.
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Rectangle

The rectangle pattern is a similar pattern to the bull flag and trading channels, where price appears to be “stuck” between two imaginary guides on the chart. The more touches we see between the price and these imaginary lines, the more reliable is the pattern. The rectangle is a trend continuation pattern, and often becomes a waiting game for traders since it is difficult to tell exactly when the price will break out of the pattern. However, the pattern is fairly reliable at predicting the direction price will break out in. The rectangle can be either bullish or bearish, depending on the direction of the preceding trend.

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The Rectangle pattern can be traded either by placing an order when price is close to the lower end of the rectangle with a stop just below the lower line and then waiting for price to break out. Alternatively, you can place a buy order just above the upper end of the rectangle in hopes of catching the trade as the price breaks out. The danger with the last option is that fake-outs where price spikes up just to fall back down do occur quite frequently. As always in trading, taking a slightly more conservative approach may serve you well over the long-term.
 
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