7 Chart Patterns for Consistent Profits

7 Chart Patterns

One factor that distinguishes a profitable crypto trader from every other type of trader in the crypto market is the identification of trend reversals and continuation patterns. Without magic or luck, you too can become a profitable crypto trader. Below are 7 chart patterns every trader should know.

Head and shoulders Chart Pattern

The Head and Shoulders chart pattern, which shows a baseline with three peaks, the middle peak being the tallest, is a common and easy-to-recognize pattern in technical analysis.

A head and shoulders pattern is a chart formation that predicts a bullish to a bearish trend reversal in technical analysis, whereas an inverse Head and Shoulders pattern predicts the opposite.

The pattern appears on all timeframes and can therefore be used by all types of traders and investors. Traders must be patient and wait for the pattern to conclude. This is so because the pattern may not develop at all, or a partially developed pattern may not complete in the future.

In a head and shoulders pattern, we look for price action to move lower than the neckline after the peak of the right shoulder.

For the inverse head and shoulders, we wait for price movements above the neckline after the right shoulder is formed.

The most common entry point is a breakout of the neckline with a stop above or below the right shoulder.

Triple Top Chart Pattern

A triple top is a chart pattern that consists of three peaks and is used in technical analysis to anticipate a reversal in the movement of an asset's price. It signals that the asset is no longer rallying and that lower prices are likely to follow.

At all times, triple tops are possible. However, the pattern must occur after an uptrend to be termed a triple top. The triple top resembles the head and shoulders pattern due to its three continuous peaks. However, rather than being taller, the center peak is nearly equal to the other peaks in this situation. Traders should only go short when the price breaks out of the support level or the neckline. The third stop of the pattern should be used as a stop loss.

Triple bottom Chart Pattern

The Triple bottom is a bullish chart pattern used in technical analysis that's characterized by three equal lows followed by a breakout above the resistance level.

Three nearly equal lows that bounce off support before breaking through resistance are defined as triple bottom. The appearance of a triple bottom is viewed as a signal to enter a bullish position.

Triple Bottom may occur on all timeframes. But for the pattern to be considered a triple bottom, it must occur after a downtrend, traders should only enter the long position when the price breaks out from the resistance level or the neckline. The stop loss should be placed at the pattern's third-bottom.

Wedges Chart Pattern

A wedge pattern is a chart pattern generated by the convergence of two trend lines. There are two types of wedge namely; rising and falling. Both rising and falling wedges are reversal patterns with rising wedges representing a bearish market and falling wedges being more typical of a bullish market.

Rising wedges: A rising wedge is represented by a trend line caught between two upwardly slanted lines of support and resistance. The support line is steeper than the resistance line in this case. This pattern generally signals that an asset's price will eventually decline more permanently, which is demonstrated when the price breaks from the support line then the continuation of the downtrend is confirmed. Traders should only enter the short position, stop loss can be placed at the upper side of the rising wedge line.

Falling wedges: A falling wedge occurs between two downward sloping levels. The resistance line is steeper than the support line in this case. A falling wedge is usually indicative that an asset's price will rise and break through the level of resistance. The traders should take a long position when the price breaks above the upper converging trend line. The bottom of the falling wedge line can be used as a stop loss.

Ascending Triangle Chart Pattern

The ascending triangle is a bullish continuation chart pattern that indicates that an uptrend will continue. Ascending triangles can be drawn onto charts by placing a horizontal line along with the swing highs or the resistance and then drawing an ascending trend line along with the swing lows with the support.

The ascending triangles often have two or more identical peak highs which allow for the horizontal line to be drawn. The trend line denotes the pattern's overall upward trend, while the horizontal line denotes the asset's historic level of resistance. Successions of higher lows are approaching resistance in the ascending triangle.

This is a sign of strength for three possible reasons. First, the buyers are willing to buy at higher prices. Second, there is a lack of selling pressure. Third, buy stop orders are clustered above resistance.

Descending Triangle

A descending triangle, on the other hand, indicates a bearish continuation of a decline. Because descending triangles indicate a seller-driven market, lower peaks are likely to be common and difficult to reverse, so they tend to travel lower and break through support. Descending triangles are defined by a horizontal line of support and a downward sloping line of resistance. The trend will eventually break through the support, and the downtrend will resume. The descending triangle has a series of lower highs approaching the support area.

This is a sign of strength for three possible reasons. First, the sellers are willing to sell at lower prices. Second, there is a lack of buying pressure. Third, Sell Stop orders are clustered below support.

Pennant Chart Pattern

Pennant can be either bullish or bearish and they can represent a continuation or a reversal. Both the bullish and bearish pennant formations can be traded using the same strategy.

However, the bullish pennant will have a long bias in the bearish pennant, and a short bias. After a sudden rapid move in price, traders should look to enter the trade on confirmation of the breakout.

The payment after a sharp move in price indicates that there is likely to be a breakout and continuation in the direction of the initial move. The candlestick closed below the pennant provides a short entry point.

For more conservative traders, stock can be placed above the pennant to limit upside risk. This usually provides traders with an acceptable level of protection. To set your minimum target levels you can measure the distance from the beginning of the flagpole up to the pennant then duplicate this distance from the price breakout following the pennant.