How to identify reversing patterns in cryptocurrency price charts
The world of cryptocurrency was characterized by rapid fluctuations in price and variability. As a result, traders and investors are becoming more and more dependent on technical analysis tools to make informed decisions regarding the purchase and sale of assets. Among the various indicators and patterns that can be used to predict the opposite, it is identification of reversal patterns in price charts.
What are reversal patterns?
The reversal pattern is a specific combination of price and price levels that indicate a potential turning point or reversing a market trend. In other words, it is a signal that the current upward or inheritance trend may end, and a new trend will soon begin.
Types of reversal patterns
There are several types of reversal patterns that can be identified on cryptocurrency price charts, including:
- Head and arms (H&S) pattern : A classic reversal pattern characterized by three peaks and troughs.
- The opposite head and arms (IHS) pattern : similar to H&S, but with the opposite relationship between the level of peak and the trough.
- Double/lower pattern : two more high minima or two more low high.
- Hammer pattern : A reversal pattern characterized by a low price movement, and then in the opposite direction.
How to identify reversing patterns
To identify reversing patterns, traders use various technical analysis tools and techniques, including:
- Software for charts : Programs such as Metatrader, Ctrader and TradingView allow users to create and visualize price charts.
- time frame analysis : traders analyze the time frame of the chart (e.g. 1 hour, 4 hours, per day) to identify patterns that may indicate reversal.
- Medium movable (masses)
: Traders use masses to identify trends by analyzing their relative strength (e.g. stochastic oscillator).
- Horizers of support and resistance : Traders are looking for support areas or resistance in which prices have been historically reversed.
Identification of reversal patterns
Here are some tips on how to identify reversing patterns on cryptocurrency price charts:
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- Monitoring chart indicators : Use tools such as RSI (relative strength indicator), Bollinger bands and stochastic oscillator to identify potential reversal.
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Example of reversing patterns in cryptocurrency price charts
Let’s analyze the example of the Bitcoin (BTC) price chart in 2016–2021, emphasizing several reversing patterns:
|. Time framework Trend Support/resistance
|. — | — | — |
|. 2016-2017 | Trend up $ 16.00 -19.50
|. 2018-2019 | Trend down USD 3.50-4.20
|. 2020-2021 | Trend up 33,000-35,000 $ |
In this example, we can see that the Bitcoin price increased to a level of resistance of USD 16.00–19.50 (2016-2017), which indicates a potential reversal formula. Later, in 2018-2019, the price dropped to a level of support of USD 3.50-4.20, which is suggested by a new trend.
Application
Identification of reversal patterns is crucial for successful trade and investing in cryptocurrency markets. Paying attention to chart indicators, time frame analysis and key levels, traders can identify potential reversal before they are rooted. Remember to carefully observe changing trends, consolidation periods and levels of support/resistance to make informed decisions regarding the purchase and sale of assets.
