Chart patterns

 Crypto Chart Patterns

Chart patterns are a vital aspect of technical analysis, but mastering them takes time before you can utilize them effectively.

The chart patterns are shapes within a price chart that helps to predict what prices will do next based on previous behavior.

Chart Patterns are the basis of technical analysis and require a trader to know exactly what they are looking at as well as what they are looking for.

Types of Chart Patterns

Chart Patterns fall broadly into three categories, they include; continuation patterns, reversal patterns, and bilateral patterns.

Continuation Chart Patterns

The continuation chart patterns signal that an ongoing trend will continue. Continuation patterns when they occur, it can indicate that the trend is likely to resume after the pattern completes. 

A pattern is considered complete when the pattern has formed or can be drawn and then breaks out of that pattern potentially continuing on with the former trend.

Reversal Chart Patterns

A reversal chart patterns are patterns that show a shift in market direction from rising to dropping and vice versa. This pattern can be used to forecast future movement and open or close transactions accordingly. When the trend direction of a stock or other sort of asset changes, it is called a reversal.

Bilateral Chart Patterns

Bilateral chart patterns are more difficult to comprehend because they show that the price can go in either way. To take advantage of these chart patterns, you should consider both scenarios' upside or downside breakout and place one order on top of the formation and another at the bottom of the formation. So be careful and don't forget to place your stops too.

For all of these patterns, you can take a position with a contract for difference also known as CFDs. This is because CFDs enable you to go short as well as long meaning you can speculate on markets falling as well as rising. 

Depending on the pattern and market analysis you've done, you might choose to sell short during a bearish reversal or continuation and buy long during a bullish reversal or continuation. 

The most important thing to understand when using chart patterns in technical analysis is that they are not a guarantee that the market will move in the projected direction; rather, they are only an indication of what might happen to the price of an asset.

3 chart patterns every trader should learn

Double Top Chart Patterns

The double top chart patterns are reversal patterns that are formed after there is an extended move up the tops or peaks that are formed when the price hits a certain level that can't be broken. 

After hitting this level, the price will bounce off it slightly but then returned back to test the level again. You've got a double top if the price bounces off that level again.

You can see that two peaks or tops were formed after a strong move up Notice how the second top failed to break the first top's high. This is a good sign that a reversal is on the way, as it means that the buying pressure is virtually exhausted. 

We would place our entry order below the neckline with the double top since we are predicting a reversal of the uptrend. The stop loss is placed above the second peak.

Double tops are a trend reversal formation, so keep that in mind. So, after a strong rise, you'll want to check for these. It's also worth noting that the drop and the double top configuration are around the same height. Keep that in mind because that'll be useful in setting minimum profit targets.

Double Bottom Chart Patterns

The double bottom chart patterns are also trend reversal patterns, but this time we're looking to go long instead of short. When two valleys or bottoms have developed following an extended downtrend, these formations occur.

You can see from this chart that after the previous downtrend, the price formed valleys because it wasn't able to go below a certain level. Take note of how the second bottom failed to break the first by a significant margin. This is a sign that the selling pressure is about finished and of the reversal is about to occur.

The price broke the neckline and made a nice move up with the double bottom we would place our entry order above the neckline because we are anticipating a reversal of the downtrend. The stop loss is placed below the second Valley.

Cup and Handle Chart Patterns

The cup and handle patterns, unlike other chart patterns, do not operate equally well in both bullish and bearish scenarios, as it is almost exclusively found in bullish scenarios. 

The most common classification for the cup and handle pattern is reversal patterns. The cup and handle, on the other hand, I believe can represent a reversal or continuation pattern.

Before entering a cup and handle trade, wait for a handle to form. The handle often takes the form of a sideways or descending channel or a triangle by when the price breaks above the top of the channel or triangle. 

When the price breaks out of the handle and is expected to rise, the pattern is said to be complete. Set a stop loss below the handle's lowest position.