Crypto Technical Analysis: Mastering Chart Patterns and Indicators

Cryptocurrency trading relies on market analysis to find and predict patterns, making informed decisions about which coins to purchase and which to give up on. This process is very technical, and skilled investors rely heavily on the available data before making a decision.

In this article, we’ll dive into the fundamentals of the analysis and discuss the chart and patterns and what they indicate when it comes to the value of a cryptocurrency.  Ultimately, making any business decision comes with a little risk, regardless of how much time and effort you put into the analysis.

The Fundamentals of Technical Analysis

Crypto Technical Analysis

Technical analysis is the very basis of the crypto trading business. The best crypto tools provide a detailed examination of historical price data and an analysis of how the price will do in the future.  The process is similar to that of analyzing and investing in financial assets.

The analysis provides data and identifies the patterns involved, but the decision to purchase or sell a crypto asset is always the prerogative of an investor.

The Key Chart Patterns

Recognizing the chart patterns is one of the most important skills an investor needs to have when analyzing the market.  A few common chart patterns often emerge for all currencies as their value changes.  Recognizing these patterns means being able to recognize when it’s the right time to purchase or sell a crypto asset.

Head and Shoulders Pattern

 This pattern consists of three peaks: a higher peak (head) between two lower peaks (shoulders).  When an investor notices this pattern, it’s mostly a sign that there’s a reversal in the market and the value of the currency you’re following will either rise or drop.  Trend reversals are usually the best time to make bold investment decisions.

Double Tops and Bottoms

Double top and bottom patterns are chart patterns that occur when the underlying investment moves in a similar pattern to the letter “W” (double bottom) or “M” (double top).  A double bottom indicates a reversal of a downtrend, and a double top indicates a reversal of an uptrend.  It’s important to note that the reversal has already started when noticing these patterns.


 A triangle pattern indicates that there’s a consolidation before a potential breakout or breakdown.  Symmetrical triangles suggest an imminent price continuation while ascending and descending triangles indicate potential bullish and bearish movements.

Technical Indicators

Technical indicators are the key tools for investors to find trends and potential movements in cryptocurrency prices.  Crypto is a volatile market, and combined with other indicators, some trends can help investors make educated decisions.

Moving Averages

Moving averages are statistical calculations that smooth out the price data and create a single flowing line used to identify the trends over time.  It’s a widely used tool beyond the cryptocurrency market and a part of stocks and forex trading.  There are two main types of moving averages:

  • Simple Moving Average – it’s calculated by summing up prices over a specified number of periods and then dividing the sum by the number of periods.
  • Exponential Moving Average – it’s an indicator that focuses more on the recent prices, making it a better tool for short-term trends.

The Relative Strength Index

The relative strength index is a popular momentum oscillator used for analyzing the crypto market as well as other financial asset markets.  It measures the speed and change of price movement.  In a broader sense, the relative strength index can tell if a crypto asset is over or underpriced.

In most cases, the index uses the data from the previous 14 days, but most tools allow the user to adjust this setting and include a longer or shorter time period.

RSI values range from 0 to 100.  An RSI reading above 70 traditionally suggests an asset is overbought, indicating a potential reversal or pullback.  When the values are below 30, the asset is undersold, and it’s a good time to buy.

The Moving Average Convergence Divergence

Moving average convergence divergence is an important momentum indicator to identify potential trends and momentum shifts.  The MACD also includes a Signal Line, which is a 9-day EMA of the MACD Line.

The market is bullish when the two lines converge, and there’s a potential upward momentum.  On the other hand, if the lines diverge from each other, there’s a downward momentum.

The histogram visually represents the difference between the MACD and Signal Line.  Peaks and troughs in the histogram indicate changes in momentum.

Candlestick Patterns

Candlestick patterns are widely used to predict cryptocurrency and forex trading market movements.  They follow the price movements for the assets the investors want to analyze and present them visually and intuitively.

Each candlestick has two main components: the body and the wicks/shadows.  The body represents the opening and closing prices, while the wicks show the high and low prices during the period.

Doji Pattern

The Doji pattern is a typical candlestick pattern used to indicate trend reversals in a cryptocurrency price.  It’s characterized by a candle with an opening and closing price that are nearly identical or very close.

The Doji pattern indicated that the market hesitates, which further means that there will soon be a reversal in the current price trends.  This works for both the increase and decrease in price, and both will soon reverse if you see this pattern.

Engulfing Patterns

These patterns consist of two candles, where the second candle’s body fully engulfs the preceding one’s body.  The bullish pattern comes after a downtrend.  The first candle indicates that there’s a period of pressure to sell, and the second indicates that the market has reversed.

The size of the candles is crucial when it comes to predicting trends.  The bigger the second candle, the stronger the change trend is.  However, if the two candles are disproportionately different in size, it may indicate that there’s an overextended move on the market, and investors should play it safe.

Hammer and Hanging Man

These patterns are characterized by a small body and a long lower wick, resembling the shape of a hammer (for the bullish reversal) or a hanging man (for the bearish reversal).

A hammer pattern is indicative of a bullish reversal.  The long lower wick indicates that sellers pushed the price significantly lower during the session.

A hanging man pattern indicates a bearish reversal.  It indicates that despite the initial buying pressure, sellers were able to bring the price down by the close.

It’s important to be mindful of the broader market context and not rely only on this pattern as an indicator of when to buy or sell.

To Sum Up

Cryptocurrency investors use a variety of tools to follow the prices of a cryptocurrency they are buying and selling.  These changes in patterns can be visually represented, giving the investor a good overview of how much the currency is worth over time.  Such patterns indicate to investors when to buy or sell the coins.

A few common patterns and indicators usually point to a coming reversal in trends.  These can be recognized even by novice investors but need to be considered within a wider market context.

Disclaimer: The contents of this article are for informational and entertainment purposes only and should not be construed as financial advice or recommendations to buy or sell any securities.

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