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How to analyze cryptocurrencies using candlestick formations

Recognizing candlestick patterns is one of the valuable and undemanding investment strategies. Trading using such settings requires that you have a good understanding of the reasons behind their creation on the chart. The existence of several popular formations can certainly be used when investing in the most popular cryptocurrencies.

Double top/double bottom formation

Double peak and double bottom (i.e. the so-called M and W formations) are also very popular among people approaching candlestick formations with reserve. These formations can come in handy when analyzing cryptocurrencies for a simple reason – an aggressive sell-off or bull market ends and encounters an area that tries to break through twice – with no apparent effect.

Sometimes the indicated area is additionally an important historical level, so the formation can be a reliable signal of opening a position, although not always. False signals appear when the observed formation is not placed in the context of the market.

Head and shoulders

The "Head and Shoulders" formation is characterized by a price forming a peak that is pierced, similar to the classic upward trend. However, due to the weakness of buyers, it falls on the area where the market started to create the first peak, and then tries to rise again. When this attempt fails, the graph forms a fairly distinctive formation. Piercing the "neck line" can mean a reversal of the trend.

The occurrence of the"Reversed Head and Shoulders" formation signals the end of the downward trend and the beginning of the bull market, or the continuation of increases.

Probably at the beginning you will be wondering which cryptocurrency to choose. Consider whether it would be a good idea to scan popular charts to find similar patterns on them. Two consecutive formations of the inverted head and shoulders are most often harbingers of the continuation of the upward trend.

Price channel growth

Touching the price of the top trend line in the channel creates further highs, while the reaction to the lower trend line – lows. Channel-to-line trading is possible, but financial institutions are taking advantage of the popularity of trend-based systems. In this way, they create false breakthroughs in order to create a trap for sellers and execute stop loss orders of people waiting for growth.

If we are counting on a safer solution, it may be waiting for a clear channel break and downward movement.

Knowledge of the issue of the price channel theme is an absolute basis for people wondering how to trade cryptocurrencies and make a profit on it.

Falling price channel

A falling price channel is a reversal of an ascending channel, it usually leads to the opening of an upward trend, This formation is often based on the creation of an aggressive supply in a false downtrend, when the large players buy back positions at the most favorable prices.

Flag

The creators of the market create liquidity on which the so-called flag motif is based. If we talk about an upward trend, then after an aggressive impulse, the price forms a characteristic, falling formation. Then retail traders looking for an opportunity to catch a trend reversal fall into the trap of selling their positions to larger institutions.

At the end of the process, the price tends to the place designated by the initial impulse. The type of flag depends on the trend variant, in the case of an upward one – it falls, in the case of a downward one – it increases.

It is a very popular formation, found m.in on cryptocurrency exchanges.

Author

  • Trainer in the field of finance, as well as a manager and speaker. She enjoys the development and success of her colleagues. He describes himself as an active, dynamic and organized person. Diagnoses the financial problems of his clients. After work, he rides a motorcycle and sails.

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