Analysis of Bitcoin Chart Patterns
There are various types of Bitcoin chart patterns, and they are one of the techniques that can predict future prices. Therefore, it is very helpful to know about them before trading Bitcoin. In this post, we will take a closer look at some of the famous Bitcoin patterns.
Ascending Triangle Pattern
Summary of characteristics: This pattern features a convergence of highs and lows, leading to a breakout (strong rise) at the apex, and it indicates a trend towards an upward movement in the Bitcoin chart.
During the convergence with a wide gap (between lines A and B), trading volume decreases, but at the breakout point, trading volume becomes more active. Therefore, many investors enter at point C, expecting a rise due to the ascending triangle pattern.
More Detailed Analysis of the Ascending Triangle Pattern
- Rising Bottom Line (Line A): The fact that the lows of the bottom line become higher indicates that cryptocurrency buyers are willing to buy at higher prices.
- Horizontal Resistance Line (Line B): This line contrasts with the rising bottom line. It remains a horizontal resistance line because there have been several attempts to break through the rising price, but they were unsuccessful. This indicates that sellers tend to sell their assets at prices close to the horizontal line.
- Trading Volume in the Ascending Triangle Pattern: An increase in trading volume as this pattern forms signals a strong future price rise.
- Price Rise: Generally, when an ascending triangle is formed, the price tends to rise. That is, the bottom line A breaks through the resistance line B and rises to a higher level. This breakout indicates the continuation of an upward trend and is a buying signal for many traders.
Descending Triangle Chart Pattern
Summary of Features: The Descending Triangle pattern is the opposite of the Ascending Triangle uptrend pattern. It is a Bitcoin chart that maintains a downtrend and then enters a triangular convergence.
Similarly, within the triangular range, there is a characteristic decrease in trading volume, and it is a pattern where additional decline can be anticipated as strong selling occurs at the apex.
More Detailed Analysis of the Descending Triangle Chart Pattern
- Continued Decline of the Top Line: Forms a descending top line by continuously creating lower highs. This implies that investors are selling assets at lower prices.
- Horizontal Support Line Becomes Resistance: This means buyers are trying to purchase assets at the horizontal line price.
- Gradual Decrease in Trading Volume: As the Descending Triangle pattern forms, trading volume decreases. This also signifies the possibility of a continued downtrend.
- Further Decline Occurs: A crash begins when the Descending Triangle pattern forms and the top line exceeds the horizontal support line. This means that the selling volume significantly overwhelms the buying volume, and if one wants to buy at the bottom, it’s advisable to observe and then enter the market.
Symmetrical Triangle Chart Pattern
Summary of Features: Unlike the Ascending and Descending Triangle patterns, it features a symmetrical convergence at the same angle. Since it’s difficult to predict the direction of a strong rise or fall in the future, it is advisable to enter or observe according to the coin market atmosphere.
Generally, after a downtrend and the formation of a Symmetrical Triangle pattern, further decline is expected, and after an uptrend and the formation of a Symmetrical Triangle pattern, further rise is anticipated.
More Detailed Analysis of the Symmetrical Triangle Chart Pattern
- Perfectly Symmetrical Shape: Both the top and bottom lines move at almost the same angle, narrowing as the pattern completes.
- Uncertain Direction: As mentioned above, the direction is uncertain, making it very difficult to confidently enter the market.
- Strong Trend Occurs in Either Direction: It can break out strongly either upwards or downwards, requiring very cautious entry.
- Trading Volume: As the Symmetrical pattern nears completion, trading volume decreases, and when a direction is determined, trading volume increases very strongly. If it goes downwards, it implies more sellers, and vice versa for buyers.
Head and Shoulders Chart Pattern
Summary of Features: The Head and Shoulders pattern is characterized by the formation of three peaks, including two shoulders and a head.
Typically, the head forms the highest point, and the right shoulder is either a lower high or similar in price to the left shoulder.
Inverse Head and Shoulders Chart Pattern
Summary of Features: The Inverse Head and Shoulders pattern is a 180-degree reversal of the above pattern.
While the Head and Shoulders forms three peaks followed by a downtrend, the Inverse Head and Shoulders forms three lows and then transitions to an uptrend.
Cup and Handle Chart Pattern
Summary of Features: The Cup and Handle pattern is a chart that shows a cup shape followed by a handle. It features a U-shaped curve followed by a strong uptrend breakout in the handle area.
Inverse Cup and Handle Chart Pattern
Summary of Features: The Inverse Cup and Handle pattern is a 180-degree reversal of the Cup and Handle pattern.
Similarly, after a downtrend and an uptrend, this Inverse Cup and Handle pattern shows a strong downtrend in the handle line area.
Double Bottom Chart Pattern
Summary of Features: The Double Bottom pattern is characterized by maintaining a downtrend, forming two lows, and then transitioning to an uptrend. (If the second low is lower than the first but rebounds off the neckline resistance, it can form an Inverse Head and Shoulders pattern.)
Generally, many investors enter around the second low, expecting a future rise.
Double Top Chart Pattern
Summary of Features: Unlike the Double Bottom, this pattern forms two highs and leads to a downtrend. Similarly, it appears when transitioning from a downtrend to an uptrend.
If the second high is higher than the first and then rises after finding support near the support line, it can form a Head and Shoulders pattern.
Triple Bottom Chart Pattern
Summary of Features: The Triple Bottom has three lows formed at similar prices. (Identified at three bottoming moments.)
The Triple Bottom has a higher probability of rising than the Double Bottom, and some investors enter around the third low, overlapping with the neckline.
Triple Top Chart Pattern
Summary of Features: The Triple Top is the opposite pattern of the Triple Bottom. It is characterized by failing to break through a strong resistance line after hitting the high area three times, showing a strong selling trend.
Rising Wedge Chart Pattern
Summary of Features: The Rising Wedge has two lines that are not balanced and slightly slanted. It is a pattern more often found in downtrends than uptrends. Within the converging lines, the trading volume decreases, showing a meaningless rise before a strong decline.
- What is the difference between the Rising Wedge Chart Pattern and the Ascending Triangle Pattern?
The Ascending Triangle pattern generally appears in an uptrend, while the Rising Wedge indicates a transition to a downtrend. Also, while the top line of the Ascending Triangle is horizontal, the top line of the Rising Wedge also rises.
Falling Wedge Chart Pattern
Summary of Features: While the Rising Wedge pattern is known for a continuous downtrend in coin charts, the Falling Wedge is a famous reversal pattern. It typically forms during a long downtrend and is marked by a narrowing price range and two declining sloped lines.
The highs become progressively lower, and the lows become higher, indicating a high probability of a strong future rise. It signals the end of a continuous downtrend.
Bullish Flag Pattern
Summary of Features: As indicated by its name, the Bullish Flag pattern signals a dramatic increase in price. It features a strong uptrend accompanied by the formation of a support zone and a sideways trading range, before breaking through to new highs again.
Especially, it tends to appear in scenarios like when a particular coin is listed on an exchange, leading to a strong price surge, or when there are suddenly many buyers.
(Also a reliable pattern in short time frames, from 5 minutes to 1 hour.)
- Sudden Strong Price Rise: The Bullish Flag pattern shows a strong uptrend, offering good opportunities for incremental buying. If held from the low point, it can aim for a high return.
- Trading Volume: During the sideways formation, the trading volume decreases. It is a resting period. Afterwards, the trading volume increases suddenly.
- What is the difference between the Bullish Flag Pattern and the Falling Wedge Chart Pattern?
The Bullish Flag has a short sideways range after a strong uptrend and shows a strong uptrend, whereas the Falling Wedge is a long-term downtrend transitioning to an uptrend.
Bear Flag Pattern
Summary of Features: The Bear Flag pattern is the opposite of the Bullish Flag pattern. It forms a sideways box range for a short time after a decline, followed by another break below the support line, leading to further decline. Similarly, it is a strong selling pattern that can lead to significant asset losses.
This concludes the summary of coin spot and futures chart patterns.
Recommended Site for Coin Chart Pattern Analysis
There are many sites for Bitcoin chart analysis, but personally, I highly recommend the site TradingView.
It provides the most services related to Bitcoin charts and has a large community, allowing you to see a variety of traders’ perspectives on Bitcoin charts.
How to Study Bitcoin Chart Patterns?
There are mainly two ways to study Bitcoin charts. One is through videos from traders on YouTube, and the other is through books.
Personally, I feel that most trader YouTube videos are not well organized, so I suggest purchasing a book related to Bitcoin chart analysis and studying it.