Technical analysis patterns are formed using the simplest graphical analysis tools, namely levels and resistance and support lines. This is the first thing every trader got to remember. There is no magic, only work with key levels.
Graphical analysis is based on one of the tenets of technical analysis that history repeats. Of course, there cannot be two completely identical models since real people trade in the cryptocurrency market. Therefore, the fluctuations in the formation of the same pattern may differ.
All the figures of graphical analysis in the cryptocurrency market tend to repeat. They have common features that allow classifying and separating them into shapes. Take, for example, an ordinary isosceles triangle formed from two trend lines that gradually meet.
The triangle size can be different, the angle of trend lines convergence can vary as well. Even the period of the triangle’s formation can vary in different patterns. But the main thing is that two converging trend lines can be drawn on the chart.
Besides, the presence of at least two waves is a specific feature of the triangle. If these conditions meet, we conclude that we see such a pattern on the chart.
Technical analysis patterns
Technical analysis patterns are a kind of alternative to algorithmic analysis that works with indicators. Although many traders use both forecasting methods to succeed.
List of main figures
- Head and shoulders
- Cup and handles
- Three Indians
- Tops and bottom
- Japanese candlestick patterns
Benefits of technical analysis patterns
Graphic analysis has both its adherents and opponents. And this is quite normal since not everyone can estimate the benefits of using this forecasting method results. Here are the main pros and cons of using the forecasting method for you to understand whether it worth your time and effort.
Advantages of technical analysis figures
Analysis without extra tools. Chart patterns can be found on a chart using only trends and levels. No extra tools are needed.
Visibility. When a trader learns to recognize graphical analysis patterns well, one becomes able to find them at the stage of formation. This allows getting certain advantages, like knowing the best time to convert LTC to BTC.
Clear rules for the formation of figures. This is another important advantage of technical analysis patterns. Each model has clear rules for generating and receiving signals. Knowing these rules, the trader will act accordingly to the situation.
Disadvantages of technical analysis figures
Unfortunately, technical analysis figures don’t always play into the hands of a trader, especially beginners. Two traders can see two different patterns on the same chart and time frame. Each trader has a different view of the market.
Many professional traders recommend avoiding following the patterns during their formation. This makes sense since any pattern precedes a strong impulse or trend continuation, expressed in an impulse. Following a signal pattern, the trader usually counts on a good profit. Working inside a figure before receiving an impulse is rather nervous and can lead to losses if the trader does not complete the trade at the moment of the signal.
Shapes classification in graphical analysis
All figures of graphical analysis can be divided into two types:
The trend indicates that the current price movement may continue after consolidation. Reversal indicates that the trend is ending and it is worth looking for reversal signals.
It is impossible to consider each separate figure of technical analysis in-depth here. This post can be considered as an intro for beginners. We hope you have found knowing the classification and types of patterns useful. You should constantly develop and read professional literature to succeed in this area.