Looking at crypto trading charts, especially if you’re a new trader, can be a minefield. What do they all mean? Is there any way of taking indications of what will happen next? Is it all guesswork? It doesn’t have to be! There are many indicators you can look at for chart analysis, and looking at trading patterns is one popular method. In this article, we will look at some common bullish and bearish chart patterns.
Bullish and bearish
Before we delve into some of the most used bullish and bearish chart patterns, let’s cover the basics. Bullish and bearish are very common terms used in all types of trading. If a stock is bullish, then the market is confident that an asset’s price will rise. If a stock is bearish, then the market is confident that an asset’s price will fall.
A bull market is a commonly defined as a sustained period of time, months or even years, during which an asset’s price rises, typically over 20%, after a 20% decline, and before another 20% decline, with a bear market being a sustained period of time when an asset’s price falls, also typically by over 20%, following a 20% rise, and before another 20% rise.
Examples of bull and bear markets in cryptocurrency
By far the most famous example of a bull market in crypto happened in 2017, when Bitcoin and many other cryptocurrencies rose in value significantly. Bitcoin rose in value from around the $1,000 mark as 2016 bid its farewell, to a high of nearly $20,000 in December 2017. Ether rose from around $8 in late December 2017 to a high of around $1,400 in January 2018. This bull run has become legendary in the crypto community.
Just as 2017 was known as the years of the bulls in crypto, 2018 became to be known as the year of the bears. It was an extremely bearish year. After its astronomical price highs in late December 2017, Bitcoin’s price fell but then recovered again slightly in early January 2018, and was still at around $17,500 on January 7. From then on, though, its price fell dramatically. Its price was around the $6,000 mark at the middle point of the year, and by the year’s end was around $4,000. Other coins also had a terrible year in 2018. Ether’s price had reduced to $450 by the middle of the year and hit a low of $83 in December. In early 2019, however, prices began to recover, and in April Bitcoin analyst Tom Lee declared that the “crypto winter is over.”
Let’s then now take a look at some different chart patterns, and if they are seen as bullish (signals to buy), or bullish (signals to sell).
Head and shoulders
Head and shoulders is one of the most commonly used chart patterns in trading. It is seen as indicating a trend reversal from bullish to bearish. As its name implies, it resembles a head and shoulders on a chart. The left shoulder will see a price rally before a slump. Following this will be the head, which will see a bigger price rally and a peak before another fall.
The right shoulder will see another price rally but not at the peaks of the head. If the price breaks out below the ‘neckline’ (signaled by red) - the price lows between the left and right shoulders, then the chart pattern is considered to be complete, as is the trend from bullish to bearish. This is also the signal to sell.
Reverse head and shoulders
Just as the head and shoulders is a very common bearish pattern, the reverse head and shoulders indicates a trend reversal from bearish to bullish. The left shoulder will see a dip in price before a recovery. The head will see a further dip in price before another recovery. The right shoulder will see a dip but not as low as the head, before the price recovers, and if it goes breaks out beyond the ‘neckline’, (as signaled in red) the pattern is complete, as is the trend reversal. This is the signal to buy.
The ascending triangle is also a very common bullish chart pattern used in trading. It is a continuation pattern, forming during an uptrend. Although there is a resistance level, it is characterized by higher lows,which means that confidence is increasing in the price of an asset. The resistance level is challenged more and more, with swing highs and swing lows, until it gets to a point where a bullish breakout occurs, which would be the signal to buy.
The opposite of the ascending triangle, the descending triangle is, you’ll probably not be surprised to learn, a bearish chart pattern. It is also a continuation pattern, and is a clear sign that an asset is weakening, and is characterized by lower highs. The support level is challenged, with swing highs and swing lows, until it gets to a point where a bearish breakout occurs, which would be the signal to sell.
Taking its name because of its resemblance to a flag on a pole, this chart pattern forms during an uptrend. The pole indicates the sharp rise in the price of an asset, after which, if the bull flag chart pattern is to be completed, there will be a consolidation in price, which will be the flag. After this consolidation, there will be a bullish breakout, which would be the signal to buy.
With the bear flag, the pole indicates a sharp fall in the price of an asset. Following this, there will be consolidation, after which a bearish breakout occurs, which would be the signal to sell.
As with any chart patterns, the outlines may not be perfect. The clearer the outlines, the stronger indicators the chart patterns will be. Also, it is important that the chart patterns are completed before you take action, or you may well pay the price. Patience is key. Another indicator of how strong the chart patterns are is timeframes - although they can be formed over a few days, they are generally seen as being more reliable if they are formed over the course of a few weeks, at least. On Bybit you can use TradingView charts to analyze when a bearish or bearish chart pattern appears.