How to Read the Most Popular Crypto Candlestick Patterns

As time progresses, multiple candlesticks create larger patterns that crypto traders derive signals from to make vital trading decisions. Non-failure swing chart patterns are similar to failure swing charts, but they involve the second peak staying above the first one (an upward continuation). Non-failure swings can indicate strong trends and sustained price movements.

The trader can set a buy price at 0.5% above the resistance in case of a breakout, and a 1% stop loss below it, in case the breakout isn’t confirmed. As you already noticed through reading the previous part of our Chart Patterns article series, finding, charting, and placing trades using the Good Crypto app is convenient and very easy. In addition to that, the app allows traders to connect all of their exchange accounts and various blockchain wallets in order to be able to easily access and trade one’s assets on the go.

Cup and Handle

The previous bullish trend will likely continue if prices break through the upper channel line. A breakout occurs when the price of an asset moves above or below a resistance or support area. Breakouts indicate that the price has the potential to begin trending in the breakout direction.

• When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
• By itself, a doji candle is a neutral candlestick pattern, but it has two major types, that being the dragonfly doji, and the gravestone doji.
• First developed in 18th-century Japan, they’ve been used to find patterns that may indicate where asset prices have headed for centuries.
• As the price reverses and moves downward, it finds the second resistance (4), which can be higher or lower than the first resistance (2).

Therefore, you shouldn’t just jump into trades when a pattern is confirmed. Always wait for a clear breakout or confirmation before taking action. Similar to the cup and handle, the rounded bottom has an upright “U” shape. Also referred to as a saucer pattern, the rounded bottom signals a reversal from a downtrend to an uptrend.

– Do chart patterns work in crypto?

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. Price gaps can still occur in illiquid markets, but aren’t useful as actionable patterns because they mainly indicate low liquidity and high bid-ask spreads. It’s important to note that candlestick patterns aren’t intrinsically buy or sell signals. Instead, they are a way of looking at current market trends to potentially identify upcoming opportunities.

• 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.
• The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price.
• Most of the time, prices will bounce off of the key horizontal lines, instead of breaking through (trade setup #2 above).
• It forms when an upward trend encounters resistance and reverses to meet a support line that sends it back up.
• These flags are bearish continuation patterns, so they give a sell signal.

A bullish wedge (angled down) represents a pause during an uptrend or downtrend. 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).

Bearish Symmetrical Triangle

Instead, to calculate the breakout level, you should take the height of the diamond and project it under the spot where the price breaks the diamond. Consequently, you can use the descending triangle chart pattern for shorting targets or finding the next buy zone at the end of the price projection. The long-legged doji candle is composed of a long lower and upper shadow. The closing and open prices that go into forming this candle are about the same. It demonstrates that there is indecisiveness amongst market participants and occurs after a heavy advance or decline in price.

In an uptrend, the price finds its first resistance (1) which will form the basis for a horizontal line that will be the resistance level for the rest of the pattern. 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. The bearish rectangle is a very common pattern that indicates the continuation of a downtrend. In an uptrend, the price finds its first resistance (1) which will form the basis for a horizontal line which will be the resistance level for the rest of the pattern. The second support (3) is higher than the first support (1) and creates the upward angle of this pattern. The price reverses direction and the second resistance (4) is lower than the first resistance (2) creating the downward angle of this pattern.

Symmetrical Triangle

Trading patterns are developed over time through constant observation. They are tried and tested methods that have worked for many traders. The best time to enter a pattern trade is ready when it’s freshly identified and published on altFINS platform. However, some traders wait for 1-2 candles (1D, 1H…depending on time interval selected) to confirm the price path.

• For example, if the price of a cryptocurrency is trending upwards in a wedge, the price may then reverse into a downtrend.
• The opportunities that many swing traders are looking for are situations where price becomes range-bound and it continues to bounce between support and resistance.
• Over time, it has evolved considerably and has become a vital tool for most traders.
• A cup and handle pattern can be spotted on a trading chart by looking for a bowl shape followed by a smaller one which resembles a handle.
• Simply put, the body of the second candle is large enough to fully engulf the previous candle.

Candlesticks derive their name from the long lines (wicks) and rectangular shapes they employ to denote price action within a specified timeframe. One of the more advanced technical analysis patterns, inverted head and shoulders, should be used with other indicators before taking a position. Other multiple-candlestick patterns involve three or more candlesticks. Other examples of single-candlestick patterns that can be considered bearish are gravestone doji, bearish spinning top, and bearish marubozu. Other examples of single-candlestick patterns that can be considered bullish are the dragonfly doji and bullish spinning top. Most individual candlesticks contain a pronounced body and a noticeable wick.

Crypto Chart Patterns For Crypto Trading

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.

The second support level (4) is higher than the first support (2) and forms the upward angle of the symmetrical triangle. In a downtrend, the first resistance is encountered (1) setting the horizontal resistance for the rest of the pattern. The price reverses direction and finds its first support (2) which will be the highest point in this pattern. 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.

Bearish Flag

But there are other candlesticks that are visually unique, and they often function as strong indicators of potential price trend reversals or continuations. Ever wondered what to make of the green and red bars on a crypto chart? Every trader can – benefit from being familiar with candlesticks and what their patterns indicate, even if they don’t incorporate them into their trading strategy. An inverted hammer occurs at the bottom of a downtrend and may indicate a potential to the upside.

• Many traders dream of being able to generate highly profitable trades on a consistent basis to earn regular income from…
• The shooting star candlestick is a bearish pattern usually appearing at the end of a price uptrend.
• An example of such an unusual candlestick is the marubozu, which is Japanese for ‘bald’.
• It occurs when the price of an asset is in a steady state and is bounded by two converging trend lines.
• Well, the answer is – it’s both, as the crypto diamond pattern can occur on either market tops or bottoms.

Each candlestick pattern tells a short-term story of market sentiment and decisions made. As candlesticks are the easiest indicators to look for, they can unlock more insights into price action, especially when combined with other technical analysis indicators. Similar to ‘head and shoulders’, users can also see ‘wedges’ as patterns in crypto charts that involve a wider point of view. Wedges can be traced in a crypto chart by drawing a line that connects the lower points of price movement over a period of time to another line for the price peaks.

Top 5 Crypto Trading Patterns

Consequently, an ascending triangle breakout means that the general uptrend is resumed, with a considerable increase in price and volume. Before we delve deeper into our trading patterns article, let’s first thoroughly explain what is pattern day trading. Crypto trading patterns are chart formations of the price action of an asset.

• The downtrend in the chart above produces a triple bottom after touching the support three times at 1, 3, and 5.
• The dark cloud cover pattern consists of a red candlestick that opens above the close of the previous green candlestick but then closes below the midpoint of that candlestick.
• For additional confirmation, you can also watch for the heavy volumes as the price falls through support.
• As long as the trend line stays intact, it’s a sign that the uptrend will continue and that a breakout is likely to happen at resistance soon.
• As such, a doji can indicate a point of indecision between buying and selling forces.

The cup and handle pattern indicates the continuation of a pattern and is a bullish indicator. As the price reverses, in a short increment, it finds its first resistance level (2), completing the formation of the (inverted) left shoulder. The head and shoulders Inverted, as the name suggests is an inverted version of the head and shoulders pattern.

Wedge Pattern Trading Strategy With Use Cases from Good Crypto

Candlestick patterns are formed by arranging multiple candles in a specific sequence. There are numerous candlestick patterns, each with its interpretation. While some candlestick patterns provide insight into the balance between buyers and sellers, others may indicate a reversal, continuation, or indecision.

• This resistance causes the price to fall to new support at 3, which is at a higher low.
• The price again reverses and finds its resistance at a lower level than before (4), forming the descending angle of the triangle.
• As the price reverses, in a short increment, it finds its first support level (2), completing the formation of the left shoulder.

The bullish rectangle is a common pattern that indicates the continuation of a uptrend. The pattern completes when the third resistance level (5) breaks through the upper – angle of the falling wedge. The price reverses, moving upward until hitting the second resistance level (3) which is lower than the first resistance point (1).