Cryptocurrency shapes and patterns are a great way to visualise movements in the market. They exist on every time scale and can be used in the context of that timeframe. It’s important to check out the bigger picture before applying these patterns because the leg up or down towards the pattern will probably repeat itself in size after the pattern ‘breaks out’ (pressure within the pattern releases in the predicted direction) so don’t get stingy and keep the trade open for some more percentages, it will bite you. we would like to give you some guidelines for profit taking according to time frame: 5 min (1-3%), 30 min (2-5%), 1h (3-7%), 2h (4-10%), 4h (5-12%), 1d (6-15%).
Note that these are only guide lines and if news or events take place as a catalyst of the movement outcomes can drastically vary.
[Be flexible with cryptocurrencies shapes and patterns in some instances. note that it is more important you see the fight between bulls and bears
and that you see who has the overhand than just spotting the exact shape.]
Here you’ll find reversal patterns. These are patterns that predict a change of direction rather than a build up in pressure which leads to a break-out. We recommend you to try understanding and visualising the forces that play behind these patterns as this will make you much more confident as a trader. It’s all about momentum. in these cases you can see the buyers (bulls) and the sellers (bears) starting to fight over the most transactions and in every pattern you see one of these groups losing or winning. Let's take the rising wedge for instance. Even though it is a clear upwards movement you can see buyers losing their strength compared to the steep climb they were in just before the pattern began (remember to keep the run towards the pattern in consideration as explained above).
And now the Head and Shoulders pattern (abbreviated as HnS, H&S) and follow the story closely here: the left shoulder first was a nice steep upwards movement, a few bears won a fight on top of the left shoulder and the graph came down a bit before the bulls jumped back in the game. after that the price made another run to the top of the head where the bears start a fight again and it comes down but here is where the roles change. The bears are so strong that they come back and defeat the bulls that made the movement to the top of the head until they are back where they finished their first fight, at the bottom of the shoulders (also called the neckline). Here you can see that the bears have won the overall fight and this is where the bulls give their last kick (and you should sell here!) and create the right shoulder before the bears give their final blow and win the fight and the price drops below the neckline.
Here you see double top. You can clearly bulls trying to make a run, failing and trying again. At this point keep a good look at your graph. The bears have an equal strength as the bulls and this most likely makes many bulls back down fast out of fear (they are the ones risking money as they just bought) and this will lead to them losing the fight in many of the cases.
One last time: it’s really important to be flexible with cryptocurrency shapes and patterns: our right shoulder is not just one bump but consists out of two smaller ones (both good selling points) and our first top of the double top is slightly higher as the second one. It is important you see the fight between bulls and bears and you can see who has the overhand in the battle more than just spotting the exact shape.
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Credits: Kenzo Voets, Coin Candy Team.
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