Understanding technical analysis is very important for Bitcoin day traders. The purpose of technical analysis is to find patterns that will be used to predict the direction of future trades. And so, technical analysts spend hours reading different types of charts (line, bar, or candlestick) to find a unique pattern.
For new traders, this process is time-consuming. It is even challenging if you have little or no idea of bitcoin charts. Nevertheless, you can use common chart patterns that are still relevant today. These patterns can help you make the right calls when day trading bitcoin.
There are three basic chart patterns used by bitcoin traders which includes bullish, bearish, and reversal patterns. While the bullish chart pattern implies an ongoing upward trend, the bearish pattern implies a continuous downward trend. Conversely, the reversal pattern shows a prominent trend (bullish or bearish) that is about to go in the opposite direction.
Most chart patterns are formed from the basic ones. Using them together with other trading tools like the Fibonacci system will make your day trading more accurate.
Nevertheless, let’s show you some chart pattern setups you should use for day trading bitcoin, we recommend testing each chart pattern on a bitcoin trading demo account so you would not risk your own money when practicing this.
6 Chart Pattern Setups for Day Trading Bitcoin
Cup and Handle
The Cup and Handle chart pattern is a direct pointer that there is about to be a bullish trend. This pattern is a good sign for Bitcoin buyers. This chart pattern can be seen when a wave-like trend line extends below into the shape of a cup (or U-shaped). A sharp drop follows this in the trend line, which serves as the handle (Note that this line should not drop to the base of the cup). Notably, the Cup and Handle pattern is seen in the 60 seconds chart as well as in yearly charts.
Flags and Pennants
Unlike the Cup and Handle chart pattern, Flags and Pennants are signs that a trend (bullish or bearish) is about to continue. Although flags and pennants indicate the trend, their trend lines, however, are different. For flags, the zig-zag trend lines are parallel while they are converging in pennants.
Flags and pennants can be identified easily with a strong trend line followed by a zig-zag break. Experts attribute the break to traders going on a break. Other trade analysts believe it forms after a major news release.
Triangle chart patterns are similar to pennants; the trend lines meet at a point. However, triangles are much more complicated than pennants. Triangle chart patterns are of three types: symmetrical, ascending, and descending.
The ascending triangle chart pattern is visible when the upper line (resistance) is constant as the lower line moves upwards. This triangle chart pattern shows that buyers are making more aggressive moves.
The descending triangle pattern can be seen when the support line is constant as the upper trend line moves downwards. In this case, sellers are more aggressive than buyers. The symmetrical triangle pattern is neutral, with both trend lines converging to a point. Note that triangle patterns also indicate the continuation of a trend.
Double Tops and Double Downs
This chart pattern is notable for day trading bitcoin. In essence, double tops and downs occur when a prominent trend is showing signs of weakness. And so, it is a pointer that a reversal pattern is about to happen.
The double tops and downs can easily be noticed when the chart pointer hits the support or resistance mark twice. It is usually in the shape of a twin peak.
Head and Shoulder
This pattern is a modification to the double tops and downs chart pattern. It occurs when there is a higher and sharper spike in the middle of the double tops and two downs. Like the previous pattern, it shows that there is about to be a reversal in trend.
The wedge chart pattern is similar to triangles, but they are not combination lines. Wedge chart patterns indicate a major reversal trend. There are two types of the wedge; the rising and falling wedge patterns.
The rising wedge can be spotted when the upward and downward trendline is converging upwards. Often, this is a good indicator that there is about to be a bearish reversal. On the other hand, the falling wedge is seen when the trend lines are converging downwards.
Final Thoughts on chart pattern setups for day trading bitcoin
Understanding these chart patterns is very vital to successful bitcoin trading. However, this understanding alone cannot guarantee long-term profits. You need to master each pattern by trying it over again to stay profitable in your Bitcoin day trading efforts.