Chart Patterns

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Chart Patterns

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Crypto Chart Patterns

altFINS’ automated chart pattern recognition engine identifies 27 trading patterns across multiple time intervals (15 min, 1h, 4h, 1d), saving traders a ton of time, including:

          1. Ascending / Descending Triangle
          2. Head and Shoulders, Inverse Head and Shoulders
          3. Channel Up / Down
          4. Falling / Rising Wedge
          5. Double Bottom / Top
          6. Triple Bottom / Top
          7. Bullish / Bearish Flag
          8. Bullish / Bearish Pennant
          9. Rectangle
          10. Support / Resistance
          11. Big Movement
          12. Consecutive Candles
          13. Drive
          14. Butterfly
          15. Gartley
          16. ABCD
          17. 3 point Extension/ 3 point Retracement

 

Price patterns appear when traders are buying and selling at certain levels, and therefore, price oscillates between these levels, creating chart patterns.  When price finally does break out of the price pattern, it can represent a significant change in sentiment.

Patterns that emerge over a longer period of time generally are more reliable, with larger moves resulting once price breaks out of the pattern. Therefore, a pattern that develops on a daily chart is expected to result in a larger move than the same pattern observed on an intraday chart, such as a one-minute chart.

The system also clearly indicates the expected price path going forward, based on machine learning algorithms that crunched thousands of past situations.

Check out current trading chart pattern opportunities here.

Here is an example of a bullish Channel Up chart pattern:

 

Chart patterns often have false breakouts, therefore, traders can increase their success by confirming breakouts with other indicators (RSI, MACD, etc.) or even a simple volume trend.

Ideally, a price breakout (above a resistance or below support line) is accompanied by an increase in volume.  The subsequent move is likely to be substantial. Hence, the increase in volume can confirm the validity of the price breakout. A breakout with little or no increase in volume has a higher chance of failing, especially if the move is to the upside.

Some of the simple patterns like Support and Resistance breakout and approaches are among the most successful with win rates above 75%.

Check out current trading chart pattern opportunities here

Check out video on how to trade an Ascending Triangle pattern.

Here’s also a great chart pattern cheat sheet.

You can search for patterns by coin or pattern type.  Watch this 23 sec video to learn how:

 

There is always some uncertainty when trading charting patterns as you are working with probabilities. Proper risk management is essential in any trade to avoid excessive losses.  This includes setting proper Stop Loss orders, using appropriate trade size and leverage.

 

Ascending Triangle

Description: Two or more equal highs forming a horizontal line at the top; two or more rising troughs forming an ascending line that meets the horizontal line.  It typically forms during an uptrend (bullish).

Trade: Typically, a breakout will occur in the direction of the existing trend. Most traders will take a position once the price action breaks through the top line of the triangle with increased volume, which is when the price should increase an amount equivalent to the widest section of the triangle.

Example: OGN emerging from Ascending Triangle

Example: Real trade example of trading an Ascending Triangle with LEO coin.

 

Descending Triangle

Description: Two or more equal lows forming a horizontal line at the bottom; two or more declining peaks forming a descending line that meets the horizontal line.  It typically forms in a downtrend (bearish).

Trade: Typically, a breakout will occur in the direction of the existing trend. Most traders will take a position once the price action breaks through the bottom trendline of the triangle with increased volume, which is when the price should decline an amount equivalent to the widest section of the triangle. 

Example: TNB emerging from Descending Triangle:

 

Symmetrical Triangle

Description: Symmetrical triangles are continuation patterns developed in markets that are without clear direction. During this period of indecision, the highs and the lows come together in the point of the triangle with low volume. Investors just don’t know what position to take.  When the investors do finally figure out which way to go, it heads north or south with big volume in comparison to volume leading up to the breakout.

Trade: Enter a trade at the breakout point in the direction of the breakout, which is typically a continuation of previous bigger picture trend.

Example: BOA emerging of a Symmetrical Triangle

Example: Real trade example of trading a bullish breakout from a Symmetrical Triangle with THETA coin.

Head and Shoulders

Description: Three successive peaks: middle is the highest and the two outside lower and relatively equal in height. It forms after an uptrend and often signals upcoming trend reversal (from bullish to bearish). The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns.

Trade: Wait for pattern to complete and price to break out – to move lower than the neckline after the peak of the right shoulder.  The most common entry point is when a breakout occurs – the neckline is broken and a SELL trade is taken.

 

Inverse Head and Shoulders

Description: Three successive peaks: middle is the lowest and the two outside higher and relatively equal in height. It forms after a downtrend and often signals upcoming trend reversal (from bearish to bullish).

Trade: Wait for pattern to complete and price to break out – to move above the neckline.  The most common entry point is when a breakout occurs – the neckline is broken and a BUY trade is taken.

Example: COTI emerging of a Inverse Head and Shoulders

 

Channel Down and Channel Up

   

Description: Trading range between diagonal parallel lines. It forms when an up or downtrend is formed between parallel support and resistance lines.  It suggests either a possible reversal in the trend or a change in the slope of the current trend.

Trade:  1) with emerging patterns, traders who believe the price is likely to remain within its channel can initiate trades when the price fluctuates within its channel trendlines, 2) with complete patterns (i.e. a breakout) – initiate a trade when the price breaks through the channel’s trendlines, either on the upper or lower side.  When this happens, the price can move rapidly in the direction of that breakout.

Example: BADGER emerging of a Channel Down

Example: MITH emerging of a Channel up

 

Bullish and Bearish Flag

   

Description: Short term (shorter time interval) small rectangle trading range between diagonal parallel lines.  It moves counter to the prevailing price trend observed in a longer time frame on a price chart. It forms typically following a sharp advance or decline and often indicates a small change in direction (or areas of consolidation) before the previous trend resumes.

Flag patterns can be either upward trending (bullish flag) or downward trending (bearish flag). Flag pattern is among the most reliable continuation patterns that traders use because it generates a setup for entering an existing trend that is ready to continue.

Trade:  Trade is initiated on a breakout, if it is in the same direction as the prevailing trend.  Also, with bullish flag patterns, traders prefer a breakout with an increase in volume but it isn’t a must. With bearish flag patterns, the breakout volume may not be that different from the volume preceding it.

Example: OIN breakout of a Flag

 

Falling Wedge

Description: Two converging lines slanted downward. It usually forms after a downtrend and suggests a potential bullish reversal in the original downtrend. However, it can also appear in an uptrend, in which case, it indicates a likely continuation of that trend.  Either way, Falling Wedge typically results in a bullish breakout.  Falling Wedge tends to be a more reliable indicator than a rising wedge.

Trade:  When price breaks the upper trend line the price is expected to trend higher.  Emerging patterns (before a breakout occurs) can be traded by swing traders between the convergence lines; however, most traders should wait for a completed pattern with a breakout and then place a BUY order.

Learn more about Falling Wedge in the video.

Example: CRU emerging from Falling Wedge

Rising Wedge

Description: Two converging lines slanted upward.  It usually forms after an uptrend but can also occur during a downtrend. There’s usually declining volume as the price rises through the pattern  (i.e. price/volume divergence). Rising wedge typically results in a breakdown (bearish).

Trade:  Emerging patterns (before a breakout occurs) can be traded by swing traders between the convergence lines; however, most traders should wait for a completed pattern with a breakdown and then place a short sell order.

Example: XMR emerging from Rising Wedge

 

Double Bottom

Description: Two consecutive, roughly equal troughs with a moderate peak in between (resembles a “W” shape). This powerful chart pattern occurs after an extended downtrend and often represents a reversal pattern that indicates a minor, if not long term, change from a downtrend to an uptrend (i.e. bullish).  A spike in volume often occurs during the two upward price movements in the pattern. These spikes in volume are a strong indication of upward price pressure and help confirm a successful double bottom pattern.

Trade:  Place a BUY order when the price breaks through the resistance line (neckline) and completes the pattern.

 

Double Top

Description: Two consecutive, roughly equal peaks with a moderate trough in between (resembles an “M” shape). This powerful chart pattern occurs after an extended uptrend and often represents a reversal pattern that indicates a minor, if not long term, change from a uptrend to an downtrend (i.e. bearish).

Trade:  Place a SELL order when the price breaks through the support line (neckline) and completes the pattern.

 

Triple Bottom

Description: Three consecutive, roughly equal troughs which may at first resemble a double bottom. These troughts represent failed attempts to break through an area of support. Each test of support is typically accompanied by decreasing volume, until a breakout in price occurs with an increase in volume. The pattern occurs after an extended downtrend and often represents a reversal pattern that indicates a minor, if not long term, change from a downtrend to an uptrend (i.e. bullish).

Trade: Place a BUY order when the price breaks through the resistance line and completes the pattern.

 

Triple Top

Description: Three consecutive, roughly equal peaks which may at first resemble a double top. These peaks represent failed attempts to break through an area of resistance. Each test of resistance is typically accompanied by decreasing volume, until a breakout in price occurs with an increase in volume.  It occurs after an extended uptrend and often represents a reversal pattern that indicates a minor, if not long term, change from an uptrend to a downtrend (i.e. bearish).  Trading volume trends should also be employed to confirm the strength of the signal.

Trade:  Place a SELL order when the price breaks through the support line and completes the pattern.

 

Bullish and Bearish Pennant

Description: A small converging symmetrical triangle (called Pennant). It forms typically following a sharp advance (bullish) / decline (bearish), followed by a brief triangular shaped consolidation in price (a small change in direction), before the previous uptrend (bullish) / downtrend (bearish) resumes. The period of consolidation should have lower volume and the breakouts should occur on higher volume. If there isn’t a flagpole (sharp advance / decline), then it’s a triangle and not a Pennant. Also, Pennants is a short-term pattern, unlike a triangle.

Example: BEAM emerging Pennant

Trade: Traders look for a breakout above the Pennant resistance (bullish) / support (bearish) line to take advantage of the renewed momentum.

 

Rectangle

Description: The rectangle pattern characterizes a pause in trend whereby price moves sideways between a parallel support and resistance zone. The pattern usually represents a consolidation in price before continuing in the original direction of the existing trend (up or down).

Trade: A swing trader can trade an emerging rectangle formation by buying at support and selling at resistance.  A trend trader just waits for a breakout in the original direction of the trend with a candle close below/above the support/resistance depending on trend direction – enter at the candle close.

Example: ULTRA rectangle pattern

Support / Resistance

Description: Key levels are simply horizontal support or resistance areas. This means that the peaks or troughs in the price graph line up to a horizontal psychological barrier.  Support and resistance lines are critical concepts in technical analysis.  These are areas where buyers deem an asset attractive to buy (support) or too expensive (resistance).  Watch a video explaining this concept.

Trade:  there are 3 ways to skin this cat:

1.  Key level approach. The first type of trade opportunity is when the price has bounced off a key level and moved away, and is now yet again approaching that level.

Example: TFT emerging of a Horizontal resistance

2. Key level breakout. When key level is breached the theory is that the momentum of the price will carry it some distance beyond the identified levelA breakout is identified when there is a definitive breach of the key level and it is presented together with a target level where one can expect the price to move towards.

Example: TLM resistance breakout

3. Key level bounce.  Most of the time, prices will bounce off of the key horizontal lines, instead of breaking through (trade setup #2 above).  So a trader could place an order to go Long when price touches the support line, or go Short (or Sell existing position) when price touches the resistance line.

ABCD pattern

Description: ABCD pattern captures the typical rhythmic pattern of the market, which traders use to identify trading opportunities. Since ABCD patterns work on different timeframes, they are widely used and form in both market uptrend and downtrend. ABCD patterns belong to the category of harmonic pattern that consists of two equivalent price legs.

Trade: ABCD patterns are easy to identify in a price chart, indicating high probability opportunities. They are used in predicting bullish and bearish reversals.

Example: EKT emerging of a ABCD pattern 

Butterfly

Description: The butterfly pattern helps you identify the ending of a price movement, meaning that you can enter the market during the reversal of the price.

Example: CGLD emerging of a Butterfly

 

10 steps for how to trade crypto using Chart Patterns

Important tips on how to best use Chart Patterns for trading, including:

    • Which crypto assets are used for pattern recognition?
    • Time interval selection.
    • Best patterns for beginners.
    • Breakouts vs. Emerging patterns.
    • Success rates of various patterns.
    • Profit potential.
    • Best time to enter a pattern trade.
    • When to exit a trade.
    • Aligning with trend.
    • Risk management.

We also recommend you watch an introduction video about using altFINS’ Patterns section.

altFINS chart pattern page

Let’s first break down the various components of our pattern charts:

1. Which assets are used for pattern recognition?  altFINS analyzes the top 500 coins (by market cap) and this list is updated every quarter.

2. Time interval selection.  Patterns are identified over 4 time intervals (1D, 4H, 1H, 15 min).  Novice traders should use higher time frames (1D, 4H) while more experienced traders can use lower time frames.  It also depends on how much time you have to monitor your positions.  Lower time frames (1H, 15 min) require more frequent trade management (monitoring, closing).   However, the success rates of the patterns are about the same across these time intervals.  So a Horizontal Level Breakout has about the same chance of success on a daily (1D) interval as it does on hourly (1H) interval.

Lower intervals will of course have more patterns forming, more frequently.

Note that Basic plan users get access to 1D interval, Essential users get access to 1D and 4H interval, and Premium users get access to patterns on all four intervals (1D, 4H, 1H, 15 min).  More details on subscription plans.

3. Best patterns for beginners.  Beginners should stick with the patterns that are easiest to understand and have the highest success rates.

That means: Breakouts (not emerging) + Buy direction + patter types including Horizontal Resistance, Ascending Triangle, Channel Down, Falling Wedge, Inverse Head and Shoulders.  Those patterns tend to have 67-83% success rate (see next section).

Chart Patterns for beginners

4.  Breakout vs. Emerging Patterns.  Read this article in our knowledge base to understand the difference.  Overall, Breakout patterns tend to have higher profit potential and are also better suited for beginner traders and Trend traders, while Emerging patterns are good for more advanced and Swing traders.

5. Success rates of various patterns.  What does “success rate” mean?  It means that price achieved the target within one length of the pattern. So if the pattern was detected over 20 days, then the price target had to be achieved in 20 days after identifying the pattern.

Based on historical backtests, the success rates of the patterns on our platform are as follows:

Chart Pattern Success rates

6. Profit potential.  altFINS calculates the profit potential for most of the patterns identified.  The calculation is simple.  It’s the distance from current live price and the forecast price.

7. The best time to enter a pattern trade is when it’s freshly identified and published on altFINS platform.  However, some traders wait for 1-2 candles (1D, 1H…depending on time interval selected) to confirm the price path.

8. When to exit a trade? – when pattern gets removed (becomes inactive).  Patterns are removed from our platform when 1) they achieved their forecasted price, 2) after 10 candles have passed (i.e. 10 days, 10 hours…), 3) if price goes too far against the forecasted direction (more than 1 standard deviation=> busted trade).

We recommend 10 candles (days, hours, etc. – depending on time interval used) as the max length of a trade based on historical data, which suggests that forecasted prices are typically reached within 10 candles after identifying a pattern.  So if the price has not achieved a forecasted price within 10 candles, trader should close that position.

In the works: in 2H-2021, altFINS will introduce alerts for patterns as well.  Traders will get alerts when patterns expire or get removed for any of the above mentioned reasons.  You’ll also be able receive alerts for coins where we detect new patterns.

9. Aligning with trend.  While this is not an absolute must, it does help increase the success rate. The old adage goes “Trade with trend”.  That applies to patterns as well. Market trends change and the success rates of Buy vs. Sell trades are greatly influenced by the overall trend direction.  Hence, traders should use Buy direction patterns when the trend is Up, and vice versa.  How to identify a trend?  We recommend using the slope of a 30-period SMA (simple moving average).  You can find that data on altFINS:

Chart Pattern and trend alignment

10. Risk management. With trading patterns, traders have to do many small trades, instead of few big trades. Because trading is about statistics. Patterns like ascending or descending triangle, channel up or down, resistance break and approach….these have about 70% success rates. That means we’re gonna be 30% of time wrong. So traders need to do a hundred trades for these statistics (success rates) to work out.  Keep trades relatively small, don’t bet the farm on any one trade!  Don’t use leverage. For additional tips about risk management, read here.

 

More tips:

How to screen for patterns on coins for a specific exchange?  Let’s say you want patterns just for Binance coins. Read here.