Chart Patterns
- Chart patterns are based upon the concept of Support and Resistance,
So before you start with chart patterns you should master the concept of support and resistance. - I’ve written a post about support and resistance in the simplest language.
So these are the chart patterns that have worked for me the most:
1. Inverse Head and Shoulders.
- There are four parts to this pattern: Left shoulder, Head, Right Shoulder and Neckline.
- The neckline is the most important part of the pattern.
- The neckline acts as a resistance for the stock.
How does this pattern work & the ideology behind it?
Now consider the Neckline as a wooden plank and BTC price movement as a hammer.
Now if you bang a hammer on a wooden plank there is a fair bit of a chance that it may not break at the first time.
Now you are hitting the wooden plank with a hammer the second time and it may not break but will definitely become weak.
Now you are hitting the wooden plank with a hammer the third time and now there are more chances that a hammer would break the wooden plank.
2. Falling Wedge.
- There are three parts to this pattern Uptrend, lower lows, Resistance and support.
- This pattern forms in an uptrend then there are series of lower lows and a breakout continuing the uptrend.
How does this pattern work & the ideology behind it?
- As earlier said this pattern forms in an uptrend and usually after a good rally lower lows are formed.
- This happens due to profit booking of the players as BTC's prices do not travel in a straight line they travel in waves.
- So usually after a good rally, many players who have taken a position before a rally are booking a profit after a huge rally i.e. they are selling the BTC so there is a lot of selling pressure that’s why a price goes down and after the profit booking is over the stock continues the trend.
- You can see in the pic above there is an uptrend, after a good rally there is profit booking which is creating lower lows.
- After profit booking is over the stock resumes the trend i.e. uptrend in this scenario.
3. Triple Bottom Pattern (Reversal)
- In this pattern, there are 4 parts that are 3 bottoms and a Neckline.
- This is a reversal pattern and only if there is an existing trend as well this pattern can be confirmed only when it has a breakout.
- This pattern can be confusing unless it has been fully formed and can be confused between double pattern too before forming.
How does this pattern work & the ideology behind it ?
- For this Pattern to be validated earlier trend should be a downtrend.
- The psychology behind this is that sellers have been exhausted and buyers are buying at every support level and sellers are selling at every resistance level.
- But when third-bottom occurs buyers are more in quantity so buying pressure is more than selling pressure that is eventually breaking the neckline i.e. breaking the resistance and giving a breakout.
- Here the Crypto earlier was in a downtrend.
- And after breaking the neckline the Crypto price has been increasing exponentially.
- So these are some of the patterns that I trust which has a very good accuracy rate of 70–75%.
One thing we need to remember is as we go on applying these patterns in shorter time frames there accuracy keeps going down as it would also happen with any indicator too. So trading with multiple confirms is a must.
Good-luck Trading!!!
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