As I continue my mission to create a crypto 101 to allow mass adoption, a lot of people who read my previous articles (How to earn crypto without investing or mining and How to Create a Wallet with My Ether Wallet), wanted me to dip a little bit into technical analysis. So without further ado, lets start by showing you the three main patterns you will see!
Traders are always trying to find an edge in order to predict market trends and patterns. Many identify this edge by learning effective rules and tools to become a technical analyst. A technical analyst tries to predict the future price of an asset solely by identifying patterns in historical price changes.
There are three main categories of patterns: Head and Shoulder, Triangle and Wedge. So for newbies, what does this mean?
Head and Shoulders
The image above illustrates when the baseline has three peaks as shown in the photo above.
As you can see, the middle triangle is higher than the outside triangles. This means that when spotted, you can potentially predict when an uptrend is nearing its end. This formation can occur from either a bullish or bearish trend.
There are three types of triangles:
The ascending triangle is formed by two lines. One horizontal line, that connects multiple highs and one ascending line connecting multiple lows. The ascending triangle means that traders are bullish on the asset and trying to break through the resistance. Price above horizontal line signals breakout through resistance and is considered a bullish signal. In the image, we can see breakout the few candles after point D and then big movement upwards.
The best example of a descending triangle was the 2018 bubble pop as seen from the image. When an extenuating upward trend keeps going, it then peaks followed by a descending trend. You can see smaller versions of this too within a timeframe.
This is usually the most common, but also can be unpredictable as the movement zig-zags in a slowly descending fashion. It's important to know that this usually happens when trading volume begins decreasing as traders are unsure where to buy and sell.
When we look at wedges, there are two types:
- Rising wedges
- Falling wedges
With a rising wedge, you see the price swing from highs and lows with a steady rise. From this, traders can predict a cliff drop off when a downward break occurs.
A falling wedge can be considered almost a mirror image of the rising wedge. This is when traders try to predict the bottom to then hold at a long position.
This is just the beginning with technical analysis, I will be adding more articles on how to read charts, also there are other factors to consider when it comes into investing into cryptocurrency and you shouldn't base your investments solely on technical analysis.
I hope this article has helped you dip your toes into technical analysis, what article would you like for me to write about? Leave a comment and if you like the article please tip it, every little helps and it is appreciated.
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