BTC (bitcoin) is the most dominant cryptocurrency and has the largest market cap so far. Since it is a correlative asset, whenever its price changes, other cryptocurrencies also follow suit. Most of the time, if its price goes up, most digital assets would are also in an uptrend. But sometimes due to its hyper volatility, predicting its trend could be a challenge. But why is it important to determine BTC (bitcoin) trend? Plain and simple. The movement of Bitcoin is an indication of whether the whole crypto market is in a bullish or bearish trend. If this is the case, what are the most reliable chart patterns that the king of cryptocurrencies is in a bullish trend? Let’s take a look at these top patterns that crypto traders have been using as a reference to depict a bullish market.
Head and Shoulder Chart Pattern
Statistically speaking, this type of pattern is considered the most accurate among price action patterns with 85% accuracy in most cases. A regular head and shoulder pattern happens when two high swings (shoulder) with a higher high (head) between them. How is it formed? The first shoulder is created when a bullish period happens when price surges then decline into a trough. Prices increase again to a new high creating the head then falls. Price surges again to create the second shoulder but would be the same level as the first shoulder. The pattern can also use to determine a bullish or bearish trend depending on its position. The head and shoulder top reversal depicts a bearish market while the inverse or head and shoulder bottoms indicate a bullish trend. But for this pattern to be used effectively, you should wait for it to be completed before executing your trade. Before making a trade, you should wait for the price action to move above the neckline where the first shoulder was formed.
These are lines set above and below the price of a security and are usually formed when a security price swings between parallel lines. They can be horizontal, ascending, or descending. The lower trend line indicates the support while the upper trend line for the resistance. The parallel lines of resistance and support can be formed by a downward slope (falling channel), upward slope (rising channel), or run horizontally. How do you draw an accurate channel pattern? Connect the two highs to draw a line that will make up the upper trend line. To draw the lower trend line, connect the two lows. Now, how do we spot a bullish trend using the pattern? The result should be a rising pattern that is formed when the price sets a new peak followed by the lower lows and it remains within the channel support and channel resistance lines. But when the price goes below the resistance channel line, this is an indication of a new upcoming trend.
This type of pattern has two trends. The ascending triangle which is usually a continuation pattern of an upward or bullish trend happens. The descending pattern on the other hand is a continuation pattern in a downward or bearish trend. An ascending triangle is created when the price moves that allowing a horizontal line to be drawn along the swing highs and an upward trendline to be drawn along the swing lows. The drawn two lines then form a triangle. When the price leaves out the pattern, it is an indication of a price breakout as a result of the increased trading volume. What are the pitfalls of an ascending triangle pattern in general? A false breakout may occur and this happens when the price surges on a low volume which means that the breakout is weak. This could be an indication that the price will return to the pattern hence aborting an upward trend.
Triple Top and Bottom Pattern
The triple bottom pattern occurs when bears control the market resulting in a downtrend over a long period of time. The triple bottom consists of three equal lows followed by a price surge above the resistance. The first bottom is seen as a normal price movement while the second bottom indicates that the bulls are starting to take control and preparing for a price reversal. Finally, in the third bottom, strong support is already in place forcing bears to give up once the price breaks above the resistance level. The triple top pattern on the other hand indicates a reversal movement in the price of a digital asset and signals the decline in price.
According to Wikipedia, this pattern is often characterized by a contracting range in prices coupled with an upward trend in prices (known as a rising wedge) or a downward trend in prices (known as a falling wedge). This pattern is also similar to ascending and descending triangles and they only differ in the width of the trendline. The rising wedge is a bearish pattern that starts wide at the bottom and contracts as price surges and the trading range decreases. While the falling wedge on the contrary is a bullish pattern that begins wide at the top then contracts as price declines. The price action creates a cone that slopes down as the lows and highs reactions merge.
Cup and Handle Pattern
This pattern was first introduced by American entrepreneur William J. O’Neil in his book “How to Make Money in Stocks” published in 1088. As the term indicates, this pattern resembles a “cup and handle” where the cup has a “U” shape and the handle is slightly on a downward drift. A cup and handle trend is usually followed by a bullish upward trend. How is this pattern formed? It occurs when there is a price surge followed by a fall. The price rallies back where the fall began and the action then creates a “U” or cup shape. The handle is then formed by the price when a small trading range should be less than one-third of the size of the cup. The cup and handle pattern can be applied over a duration of 60 minutes and monthly trading charts. An inverted cup and handle is an indication of a bearish continuation pattern though.
That wraps up our top crypto pattern charts that traders can use in trading their cryptocurrencies. But since cryptocurrencies are volatile, there is no perfect chart that can be used to fully determine their price movement. The trend can change drastically in contrast with the chart due to several factors. Even geopolitical tension like the Russia and Ukraine conflict can affect the price of digital assets. So, it’s always best to keep countermeasures in place just in case. One example of which is setting a stop loss to avoid huge losses when a bullish chart reverses.