Crypto Chart Pattern

Compendium
#SatoshiMoku — CarpeNoctomFollow
Dec 18, 2018
All technical analysis (TA) uses the left side of the chart to attempt
to predict the right side of the chart with a reasonable degree of
certainty. With chart patterns, the business of TA can become
more of an art than a science. People, or robots and algorithms
written by people, have traded markets for decades, but the same
chart patterns appear again and again on any tradable product.

TA and chart patterns work well with cryptocurrency because it is

often difficult or impossible to properly evaluate fundamentals
beyond basic network use and activity. Crypto is also 24/7 market
with no interruptions or after market hours, which can make the
chart patterns more obvious because there is zero downtime while
the pattern forms.

Each chart pattern generally has a known completion percentage

and outcome. The king of chart patterns is Thomas Bulkowski
who chronicledalmost 14,000 chart patterns on stocks from 1991
to 2008. The patterns are also closely aligned with Wyckoff market
cycles. The markup or markdown phases often include
continuation patterns whereas the accumulation and distribution
phases often form reversal patterns.

Recognizing Chart Patterns

A chart pattern can be defined as a recognizable formation or

fractal that gives a bias towards future price movements. All chart
patterns have a stereotypical fractal structure which are generally
easy to identify. A poorly defined pattern should not be discounted
entirely, but thought of as having a reduced chance of having the
predicted outcome. Fractals can be any repeating pattern on a
price chart for an asset, not necessarily a classically known
pattern. Chart patterns and harmonics are examples of these
known repeating fractals.

The key to successfully trading these patterns is to identify them

and form a trade plan as the pattern takes shape. The most
important aspect of every chart pattern, for new traders especially,
is a clear road map for entry, target, and stop loss of a trade. The
setups for these chart patterns can therefore be seen as highly
actionable trading signals.

In general, all patterns trigger a long or short entry when

horizontal or diagonal support or resistance is broken, which is
often but not always accompanied by volume confirmation. There
are plenty of excellent looking setups that never go anywhere and
early trade entries can often go in the opposite direction. All
patterns can be drawn and predicted as soon as information
allows, but a trade entry should never occur until after the
pattern has completed. If a horizontal entry is missed, price often
returns to retest this level after the breakout. This is known as a
throwback.

Stop losses are placed at a local high or low of the chart pattern,
and targets are determined by using the measured move in
conjunction with a 1.618 fib extension — both of which are based
on the depth of the pattern. All measured moves are usually the
size of the pattern formation itself, projected up or down from the
breakout point. Fib extensions and measured moves paint a
projected target, but that target can always under or over shoot
depending on market conditions. More often than not, a target is
reached perfectly either on a wick or during a new consolidation
period.

Consolidation periods are often accompanied by descending

volume. Buyers and sellers become less and less eager to enter a
trade until the direction becomes clear. On aggregate, a chart
pattern can gauge the sentiment or uncertainty of the market and
provide a prediction for the next move in price.

If the volume profile does not match a pattern, it does not mean
the pattern does not exist, it merely suggests that the probability of
the pattern playing out as expected is significantly lower.
Confidence and position sizing should be adjusted to
accommodate. A matching volume profile for the pattern
considerably increases confidence and probability of the pattern
playing out as expected. Often, a descending volume profile will be
a leading indicator for a developing chart pattern. If volume is
noticeably descending, look for potential chart patterns.

There is also a time component or time factor for each pattern. A

pattern developing on a higher time frame can suggest a higher
probability of success for a trade. The most successful chart
patterns often have a total duration of days and months, not
minutes or hours. This does not mean that lower time frame
patterns do not form adequate setups, but rather that they often
have a higher failure rate due to excessive noise and lack of
definitive consolidation.

There are three types of patterns based on their biases;

continuation, reversal, or bilateral. The formation of a
continuation pattern suggests the expectation of trend
continuation after the pattern completes. The formation of a
reversal pattern suggests the expectation of a dwindling trend,
with price moving in the opposite direction after the pattern
completes. Bilateral patterns carry no bias and can be considered a
‘trade the breakout’ situation. Generally, this means traders are
risk off, flat, or in no position until the move becomes obvious.

You do not often see reversal patterns forming as continuation

patterns in a trend, but it can and does happen. A head and
shoulders pattern at the bottom of a bear trend is one example of
this phenomenon. When these patterns do complete, it should be
seen as a strong continuation signal. Here is a chart pattern cheat
sheet for further reference.

Triangles

Triangles are a common recurring pattern shape and should be

thought of as pricing coiling before large price movement. An
ascending triangle in a bull market holds a bullish bias while a
descending triangle in a bear market holds a bearish bias. The
formation of a pennant also holds a trend continuation bias.
Triangles also typically complete after three quarters full or
greater, meaning, after the triangle is drawn, a move can and does
often occur before the pattern has completely filled in.

All of the following charts below were drawn on log scale. I prefer
log scale because percentage changes are better reflected as price
moves higher or lower. For example, the distance between US$100
and US$200 is equal to the distance between US$200 and
US$400 because both scenarios represent a 100% increase in
price. Chart patterns can be found on linear or log scale but I’ve
found that patterns on log scale can be easier to identify.

One of the longest forming chart patterns in crypto was Bitcoin’s

ascending triangle in 2015 and 2016 which took 205 days to
complete. The triangle concluded with a false breakout on low
volume before ultimately heading North.
When false breakouts do occur, the pattern can still remain valid,
especially if the pattern had a long formation duration. Despite
breaking down first, the setup for a long trade remained as soon as
the horizontal resistance was breached.

https://www.tradingview.com/x/z9DvgAU0

The ascending triangle carried a 1.618 fib extension and measured

move of US$607 and US$715 respectively, which was reached
before price reversal. When the zone of resistance, or target for a
pattern is within a large range, closes for those trades with weight
around the average of the two extremes is the most conservative
approach.

The resolution of the slow forming ascending triangle led to a

bilateral triangle with targets of US$500 and US$800. This
triangle did not have a clear descending volume profile and broke
down on news that Bitfinex had been hacked for US$72 million.
https://www.tradingview.com/x/cGdBx5Zb

Another bilateral triangle formed on the Bitcoin/USD daily chart

throughout the month of January 2018, with targets of US$6,135
and US$16,335, which were reached on the downside target
almost exactly. The pattern formed with the classic descending
volume profile of consolidation.
https://www.tradingview.com/x/iG6FXKr4

The Ethereum/USD pair also experienced a slow-forming

ascending triangle which took over 160 days to complete before
eventually reaching it’s measured move of US$810. The pattern
had a clear descending volume profile with a volume ramp once
the horizontal resistance was broken. Price also tested the
horizontal support twice before going higher. This is known as a
throwback.
https://www.tradingview.com/x/g4EReLuI

The Ripple/USD pair formed a 209 day bilateral triangle which

broke to the upside target, consolidated, and eventually reached
much higher. The pattern also had multiple descending volume
profiles and resolved with a strong volume confirmation to break
the range.
https://www.tradingview.com/x/34a6Pa3u/

Triangles can also continue to push price higher when the trend is
strong enough. On the Bitcoin Cash/USD pair, several triangles
formed, both reaching their respective targets.
The Stellar/USD pair formed a tight, multi-month triangle
throughout most of 2018. The pattern failed to break upwards
despite carrying a bullish bias. All patterns, regardless of the
setup, are subject to macro market conditions. Despite seemingly
being a slam dunk trade, the pattern broke down following with
the rest of the crypto market.
https://www.tradingview.com/x/d0AFtod6/

Wedges

Similar to triangles, wedges form fairly often and signify reversals

or pending support tests. A falling wedge (FW) has a bullish bias.
A rising wedge (RW) has a bearish bias. Either can form after a
bullish or bearish rally. Much like the triangle, wedges often break
out when at least three quarters full or greater.

A FW forming after an up trend signals a continuation bias. A tight

downward sloping wedge can form down to as low as 50% of the
prior move. Throwbacks can occur at diagonal support similar to
horizontal support or resistance. Break out is confirmed with an
increase in volume.
The Bitcoin/USD FW below had multiple poles to use with the
measure move. In this case, both targets were hit nearly exactly
before pulling back. When multiple measured distances are
available, I often use both to form a range of conservative and
maximal targets.

A FW following a bear trend has a strong reversal bias. As sellers

get exhausted on less and less volume, the trading range gets
smaller and smaller. This multi-month FW on the Ethereum
Classic/Ethereum pair was coupled with a building bullish
divergence. Altogether, this setup is one of my favorites because of
the confluence between price, volume, and oscillators.
https://www.tradingview.com/x/PPHPDRiR/

A similar setup with a FW and bullish divergence occurred in

January 2017 after a swift drop in price. These setups are also easy
to watch as they are forming because they occur after a large price
movement.
https://www.tradingview.com/x/guTvR0h9

Bitcoin/USD formed another FW after dropping from US$6,200

in late 2018. Even on the four hour chart, the bullish divergence
continued to build as price went lower. When price broke diagonal
resistance, RSI also broke 50 and relative volume increased.
https://www.tradingview.com/x/TSCctYuZ

The Ripple/bitcoin pair also had a variant of the FW at the bottom

of a downtrend throughout 2017. Like many patterns in crypto,
this formation did not necessarily fit the classic rules of chart
patterns, but nevertheless, behaved as expected. The pattern was
completed after a wash out or capitulation at the lowest level
followed by a swift price reversal.
https://www.tradingview.com/x/yggKESBS/

A RW after a bear trend signals a continuation bias of the prior

trend. Patterns on certain crypto pairs may be extremely slow
moving with a subtle slope. The multi-month pattern on the
Ripple/Ethereum pair never reached the measured move target,
which pointed to a historic low for the pair. Instead, the pattern
reached the lowest low of the RW and reversed upward.
https://www.tradingview.com/x/dziI5CE4/

https://www.tradingview.com/x/722WL19N/
At the height of the Bitcoin price in December, price was forming a
wedge with price moving higher on lower and lower volume. This
is known as a bearish divergence, and when paired with
recognition of wedges, can yield highly profitable trades. The
break of the wedge was also confirmed immediately with a spike in
volume despite only a small drop in price.

https://www.tradingview.com/x/W9XJ3TKx

RWs were common throughout Bitcoin’s bull run in 2017, most of

which broke up and were not reversals. Hence, the importance of
trading the breakout with wedges and using local highs or local
lows as a stop loss. Both of the wedges below broke North, despite
the pattern formation.
https://twitter.com/CarpeNoctom/status/938238623358517250
https://twitter.com/CarpeNoctom/status/924297568661704704

Head And Shoulders

The head and shoulders (H&S) or inverted head and shoulders

(iH&S) chart patterns both represent reversal chart patterns.
Ideally, the pattern has an obvious horizontal support or
resistance line, which can present as a diagonal as well.

The hallmarks of a H&S include a series of three extreme lows,

with the second low exceeding the first and third lows. Both
shoulders should reach for about the same price. Although a strict
descending volume profile is preferred, there is often a volume
peak in the head of the pattern.

On the Ethereum pair, a multi-shouldered H&S formed in mid

2018. Multiple shoulders on the pattern are not particularly
common but should not invalidate the pattern and setup. This
pattern resolution also shows the importance of using both the fib
extension and measured move when determining targets. Once
price breaches support, stop losses are placed just above the last
shoulder formed.

https://www.tradingview.com/x/T5WWOA9U

An iH&S formed on Bitcoin/USD pair in early 2018, also with

multiple shoulders and a stark descending volume profile. The
breakout was confirmed with a spike in volume as price broke the
diagonal neckline.
https://www.tradingview.com/x/NsxJGCkv

The Ethereum/Bitcoin pair also formed a H&S in early 2018,

which barely grazed it’s first target. Patterns with extreme wicks or
diagonal support and resistance are often difficult to measure
properly. The trader needs to decide whether or not to include
these wicks when measuring targets. Measuring from both the
candle wick and the candle body can further provide a target zone
to close the trade.
https://www.tradingview.com/x/Ds70x8Bt/

An H&S pattern can also have an elongated head compared to the

shoulders, as was the case in July 2017. A longer head formation
only increases price projections once the pattern completes, but
should not decrease the probability of the pattern reaching it’s
projected target. Steep reversals while forming the head are also
likely to distort the typical descending nature of the volume
profile.
https://www.tradingview.com/x/rNk6aTJB

A large potential iH&S failed to resolve as expected in early 2018

on the Bitcoin/USD pair. This chart illustrates the importance of
patience with entry triggers. Although the pattern completed, the
horizontal resistance line was never breached.
https://www.tradingview.com/x/T4cnwvMx

In mid 2018, a one month iH&S formed on the Bitcoin/USD pair

with the stereotypical descending volume profile. The volume
history of the volume range (vertical bars) also illustrated the gap
in price history after the neckline was breached. Confluence for the
target prior to the move included; the 1.618 fib extension, the
measured move, the previous horizontal break point, and an
increase in volume history at the price target.
https://www.tradingview.com/x/1mtK4uCe/

Ideally, the necklines of H&S or iH&S are strictly horizontal, but

this is not always the case. Several of these patterns have formed
on Ethereum/USD recently with a diagonal neckline. When this
occurs, the targets become harder to identify based on price
structure alone. The iH&S below formed on decreasing volume,
with price currently sitting at the neckline throwback. The stop
loss for the active long entry is below US$418, which was hit
within the next few days.
https://www.tradingview.com/x/Xc47PnvQ/

Adam and Eve

The Adam and Eve (A&E) or inverted Adam and Eve (iA&E) chart
pattern has a reversal bias and is a variation of a double top or
double bottom. Ideally, the pattern has an obvious horizontal
support or resistance line, which can present as a diagonal as well.

The pattern forms with an Adam (V) left and Eve (U) right. The V
is violent and quick whereas the U is gentle and slow. In legacy
markets, the A&E typically has uniform lows. With crypto, the Eve
formation is almost always diminutive compared to the Adam.
This may be because crypto market participants are largely driven
by emotion which leads to violent sell offs and early buys after
extreme lows are reached.
An A&E formed on Bitcoin in 2017 before the bull run to
US$5,000. When measuring targets, I typically use the second Eve
low rather than the first Adam low as a more conservative
approach. Both lows can be included with the measured move to
create a zone for an expected target.

https://www.tradingview.com/x/ZPctzK2T

Early in Ethereum’s history, an A&E formed around US$10 which

would signify a bottom before a massive 4,500% bull run.
Obviously, this won’t always be the case, but does illustrate the
ideal trade entries that can be obtained when accurately
identifying reversal patterns.
https://www.tradingview.com/x/qxcCsGpL

The Cardano/Bitcoin pair also had a A&E form below 1000

satoshis before a 250% bull run. This pattern immediately blew
past the measured move target and gives credence to ‘letting
runners run’ instead of closing 100% of the trade at the expected
target.
https://www.tradingview.com/x/C6fFnpKM/

On the Ripple/USD pair, a very clear and symmetric A&E formed

with a classic descending volume profile. On higher time frames,
A&E patterns look similar to a W bottom. The 1.618 fib extension
and measured move yield a target near the 50% retracement of the
previous range.
https://www.tradingview.com/x/rA5f4mQe/

This A&E would go on to fail to reach the intended target, only to

reform a few weeks later with a large consolidation pattern. On the
second attempt, price had explosive volume once breaking the
horizontal resistance.
https://www.tradingview.com/x/atXBmpr2/

Cup and Handle

The Cup and Handle (C&H) or inverted Cup and Handle (iC&H)
chart pattern has a continuation bias after forming a U-shaped cup
and often stark V-like handle. The pattern remains valid so long as
the handle does not break 50% of the entire cup. Trade entries are
triggered once price breaks the support or resistance of the cup,
with a stop loss below the low of handle.

A multi-month C&H formed on the Bitcoin Cash/Bitcoin

throughout late 2017. The pattern formed after a failed completion
of an A&E, and very quickly reached the projected target after
breaking diagonal resistance.
Diamond Patterns

A diamond bottom or diamond top indicates formation of a

reversal bias as momentum from the previous trend is waning.
The diamond shape is created with higher highs and lower lows,
touching each trend line more than once. The formation of the
pattern can be thought of as consolidation before the next decision
point.

Volume for this pattern tends to be variable and not strictly

descending, due to highly volatile price conditions while forming.
As the formation is completing, trade entries with stop losses
above or below the most recent high or low are warranted.

On the Bitcoin/USD pair, several diamond patterns formed

through April of this year. The larger diamond completed with a
significant increase in volume. On higher time frames, this
diamond appeared as a W double-bottom.

https://www.tradingview.com/x/rX8ajOz0

The shape of the diamond is often not perfect, while the price
action within the trend lines is often highly volatile. This diamond
on the Bitcoin/USD pair also had the stereotypical descending
volume profile throughout the entire pattern formation.
https://www.tradingview.com/x/1SbACYDx

The Ethereum/USD pair formed a wide-ranging and noisey

diamond bottom with declining volume throughout mid-July
2018. The pattern resolved upward as expected with a large
increase in volume.
https://www.tradingview.com/x/OzNfJKbr/

Diamond patterns can occur on any time frame but most often
occur after a large impulsive move. A diamond top formed the on
Bitcoin/USD pair but concluded with several fake outs before the
retracement downwards. When a breakout in price structure is not
obvious, waiting for volume confirmation is preferred.
https://www.tradingview.com/chart/Sl81WH1x/