What Are Chart Patterns? | Price Breakout - Continuation Patterns - Reversal Patterns - STOPLOSS | Homework.

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CHART PATTERNS

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Chart patterns are vital in both trade analysis and execution as they serve as the basic grounds for decision making by any cryptocurrency trader. They help traders to know when to enter a trade by careful observation of the chart in the different time frames available on the exchange.

It is important to identify the unique characteristics of the chart of a particular currency pair in order to know the support and resistance levels and intervals. This helps traders to set a good target to empty they holdings or to buy more of a particular asset.

Chart patterns are therefore the fundamentals of any trade and its successful analysis could earn you huge gains.

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Price Breakout

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Price breakouts is a deviation from the support and resistance levels identified in a particular chart pattern. At the support level, the price of the currency pair usually finds it difficult to fall below that and at the resistance level, the price finds it difficult to climb any higher.

As such, during price breakouts, there is a sharp changes in the behavior of these support and resistant levels. When it occurs at the resistance level, it moves the price up regardless of the behavioral pattern. And once it occurs at the support level, it goes down below.

Making an entry trade at the price breakout level is very risky. This is because, if not spotted correctly you could lose significantly.

In the btc/usdt pair below, you would notice the support and resistance levels until the price breaks out and sends it to 43,782.45 sending it to around 47,000.

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Continuation Pattern

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This is a pattern that appears to be sticking to coarse and maintaining its trend in either the upwards or downward direction. This is usually a short term behavior of a given chart but can occur on a number of occasions.

This pattern is characterized by the higher high or lower low formation identified in a given chart.

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Higher High Formation

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Higher highs usually depict the successive increment of the price of a given crypto asset or currency pair. They favor the buying and accumulation of more crypto assets.

This currency behavior greatly attracts many investors towards the asset which giving them the ability to pump its price and increase its market capitalization.

Let's take a look at the btc/usd currency pair below.

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Lower Low Formation

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This chart formation displays the successive reduction in the price of a particular currency pair. This pattern is usually controlled by the continuous selling action of lots of holders pushing the price further down.

Here, you can identify a clear decreasing pattern of the btc/usd currency pair at hand.

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Reversal Pattern

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Reversal patterns terminate the existing trend of a particular currency pair and create a new one in the reverse direction. They are revealed very early with clear-cut signs and provide a small range to allocate a stop loss.

We use candlestick formations to identify these patterns on a chart and are characterized by double top and double bottom formation.

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Double Top Pattern

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This is a pattern that shows a repetition of the candlestick on a fixed high point twice. This means that it first hit the high point and then came down and then hit the same high region again. When this occurs, we say there is a double top formation.

In the RSR/USDT trading pair below on binance, I was able to identify a double top pattern at the 0.04967 price mark.

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Double Bottom Pattern

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Double bottom is quite the opposite of the double top. In this pattern, the candlestick first hits a price at the bottom end and then moves up a bit. It then hits the same lower point and then moves up from there (reverses).

In the AXS/BTC trading pair below, you can clearly see the indication of a double bottom formation at the .

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Importance of Stop Level(STOPLOSS)

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In the entry of trades, not every entry is a guaranteed profit. At times, trades show a sudden anomaly and may deviate from the observed pattern. Traders know this and as such, use a technique called STOPLOSS to avoid further losses.

Stoplosses are identified using the old behavior and price trends of the currency pair on previous occasions. This is done by careful observation and analysis of the chart in order to point out the strong support levels of the trading pair. This is more of a plan B for trades because no trade is a 100% efficient.

Once set, if the chart falls significantly below the entry point and hits the stoploss point, loss is significantly minimized and prevents total asset loss.

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Where To Find & How To Set A Stoploss

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Stoploss is identified based on the previous asset history. This is found using both the support and resistance levels of the trading pair in question. Preferably, there must be 3 support and 3 resistance levels for a trader to limit for stop losses.

However, in the event of 2 supports/resistance, we can still set our stop losses.

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Conclusion

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Trading is not a guess game but a meticulous planning and execution of events. This is why we must seek expert advice and thrive to learn more in order to comprehend what it entails. Although no trade is a 100% efficient, knowing the specifics of what you are doing could be the difference between earning or losing.

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Thank you for your attention.

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I would appreciate your thoughtful contributions in the comment section as well. Thank you for your atttention.

Many thanks to the steemit team ( @steemcurator01 & @steemcurator02) for this initiative.

To the attention of professor @stream4u