Being a part of technical analysis, chart patterns rely on the idea that everything is a repeated cycle.
Therefore, different patterns that occurred in the past are now used as an indicator of possible future events.
For traders, such tools unveil a market’s trends through its price action.
Though there are numerable chart patterns, not all of them have the required accuracy.
What are the most widely used patterns, and what do they mean?
We present a list of the best patterns that will come in handy when evaluating the state of the market.
Head and Shoulders Pattern
Being one of the easiest patterns to spot on a chart, Head and Shoulders will grab your attention with its three rising points – two shoulders and a head.
Two equal points will be divided by the highest one.
Also, the same pattern may occur in an inverted state in the chart.
As a result, it will mean either the end of an uptrend or the end of a downtrend.
This pattern shows high reliability and is widely used in predicting trends, so save it to your list of favorites as well.
Pin Bar Candlestick Pattern
The patterns that are in the spotlight in this list have one thing in common: they consist of candlesticks.
Those small pin-like marks hold loads of information about the price and the period when it was rejected.
But how do we use this pattern for making a prediction?
Look at the pin bar nature:
- A bearish pin is a sign of a downtrend – and it is marked by a long upper shadow.
- A bullish pin is a sign of an uptrend, and it has a more prominent lower shadow.
The shadow, or the wick, and the body are the component parts of a candlestick.
As a detailed guide by Margex points out, this scheme proved to be useful through the centuries, and today investors haven’t given up on it.
Ascending and Descending Triangle Pattern
This pattern represents a trend line connecting a consequence of lower highs and a second line connecting a consequence of lows.
If there’s a triangle in a chart, the investor should be prepared for the continuation of a trend.
- An ascending triangle with two or more equal highs and a series of higher lows promises a bullish trend.
- A descending triangle with two or more equal lows and a series of lower highs promises a bearish trend.
Wait until the pattern is complete: the price should break above the resistance line or support line in case of a descending type.
Rising Wedge and Falling Wedge Pattern
This pattern suggests the end of a downtrend.
Yet, if it appears in reverse – a falling wedge will suggest the end of an uptrend.
Just like with triangles, the wedges have two converging lines that connect higher lows and higher highs.
Yet this time, they are looking in the same direction.
On the charts, it looks like a triangle with slightly tilted lines – although this pattern is one of the most difficult ones to spot and trade.
Bullish and Bearish Flag Patterns
Depending on the direction of the trend, the investor can encounter a bullish or bearish flag pattern.
The first one appears when it’s an uptrend, and the second one appears in a downtrend, yet both marks continuation.
To spot it on the chart, look for a “flagpole” – it usually forms on a price spike, and then diagonal parallel lines for shorter periods follow.
Crypto Chart Patterns: Conclusion
There are multiple ways to become a successful trader, and the science behind the chart patterns is worth your attention.
Although this method doesn’t provide 100% accuracy, it shows tendencies and price movements.
With such data, it’s easier to predict future events than to rely on intuition or someone else’s predictions.
Anyone who’s eager to learn as many trading tools as possible will soon find out they made their best investment – an intellectual one.
Make profitable decisions relying on technical information and experience!
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