DISCLAIMER:

This book does not provide financial advice and you should
not treat any of the content as such. I do not recommend
any cryptocurrency be bought, held, sold, or otherwise
speculated on by you. You are solely responsible for
conducting your own due diligence and consulting a
financial advisor before making your own trading or
investment decisions. Trading cryptocurrencies is a high-risk
activity, which can result in significant financial losses.
Under no circumstances will I be liable for any loss,
damages (special, incidental, consequential, or any other
type), or other negative consequences of any kind you or
anyone else suffers as a result of any trading, speculating,
or investing based on any information you receive through
this book. All information highlighted in this book is for
educational purposes only and does not assert or guarantee
any future asset value or performance whatsoever. No
warranties, express or implied, are given and are expressly
waived. No assertions or guarantees are made as to the
accuracy or completeness of this book and its contents.
All market participants should check with their regulators
and relevant authorities to ensure their own compliance
within the jurisdiction they reside or are a citizen thereof.
This book does not assert the legality of anyone as a market
participant nor does it assert that any actor in the space,
whether an exchange or any other business or business
affiliate, is compliant with any regulator or legal authority
whatsoever. I make no claims or judgments as to the safety
or soundness of any exchange, founding team, technology
or supporting technology, or any other products or actors
relevant to the industry. This book makes no legal
judgments about anything, and market participants are
strongly advised to seek legal advice from a professional
before engaging in trading or otherwise speculating on
cryptocurrencies.
Readers understand the performance statistics come from a
limited sample size within the top 100 cryptocurrencies. All
statistics are for educational use only, and readers should
take into account any and all possible limitations of the
study, which include, but are not limited to, small sample
sizes, limited historical record, a latitude of subjectivity, and
human error.
 Copyright © 2020 by R.S. Varnes
All rights reserved. This book or any portion thereof may not
be reproduced, transmitted, distributed, or otherwise used
in any manner, whatsoever without the express written
permission of the publisher except for the use of brief
quotations in a book review and certain other non-
commercial uses permitted by copyright law.

CONTENTS
Introduction

I. PRELIMINARIES AND TRADE PROCEDURE

Chapter 1
Preliminaries
Blockchain and Cryptocurrency – What Is It?
Speculation
Learn to Trade – Don’t Just Be a HODLer

Chapter 2
Using Exchanges and Wallets
Tokens vs. Coins
Exchanges
Legal Compliance on Exchanges: KYC and AML
Two-Factor Authentication
Wallets and Transactions
Exchange Wallets
Decentralized Exchanges
Cold Storage Devices
Funding an Account, Deposits, and Withdrawals
Stable Coins

Chapter 3
Trader Terminology and Trade Execution
Circulating Supply, Price, & Market Capitalization
Types of Traders
The Bulls and the Bears
Buying and Selling vs. Longing and Shorting
What’s a Squeeze?
Margin (Leverage) vs. Spot Trading
How to Execute a Buy and Sell Order
Hidden Orders and Spoofing
Exchange Fees and Tips for Reducing Them

II. TECHNICAL ANALYSIS

Chapter 4
Reading a Chart
Chart Anatomy
Logarithmic vs. Linear
Volume
Time Frames

Chapter 5
Japanese Candlesticks (Crypto-Friendly Interpretation)
Bullish Candles and Formations
Bearish Candles and Formations
Dojis

Chapter 6
Trend Lines
Trend Line Formation
Chapter 7
Chart Patterns
When to Enter a Breakout Trade
When to Exit a Failed Breakout Trade
Taking Profit
Chart Pattern Performance Analysis and Methodology
Continuation-Biased Patterns
Evolving Charts (Failed Patterns, Changing Shapes, &
Reading a Chart Fluidly)

Chapter 8
Oscillators and Momentum Gauges
Relative Strength Index (RSI)
Divergences
Bullish Divergences
Hidden Bullish Divergences
Bearish Divergences
Hidden Bearish Divergences
When to Be Careful With Divergences

Chapter 9
Moving Averages

III. TRADE STRATEGIES AND THEORY

Chapter 10
Essential Trade Strategies
Applying Risk Management
Calling Tops and Bottoms
Adopting Hard Evidence-Based Rules BEFORE Entering a
Trade
Trade Example and Rule Analysis in Practice (Short-Frame)

Chapter 11
Trading Altcoins and Different Market Conditions
Trading Altcoins
The Impact of Legacy Markets on Crypto

Chapter 12
Long-Term Strategies
Fundamental Analysis
Hedging
Averaging Down

Chapter 13
Additional Tools and Insights to Help You Master Your Craft
Where and How to Practice Without Risking Money as a
Beginner
Applying These Trading Techniques to Other Markets
Develop Your Own Strategies
Gamblers’ Mentality: Identification, Prevention, and
Mitigation
It’s Okay to Be Wrong
How to Move Past a Losing Trade or a Winner You Let Go too
Early
Tune Out the Logical Fallacies and Hyperbolic Media
Definitions Key
Pattern Performance Analysis Methodology
References

INTRODUCTION

The Chart Logic handbook is designed to give new traders

all of the information they need to begin trading the
cryptocurrency markets and offers experienced traders an
easy go-to refresher with exclusive insights, statistics, and
tactics. The goal of the handbook is to achieve profitable
fluency in trading and to provide all traders and investors
with the tools necessary to outperform a simple buy and
hold investor. To this end, numerous resources exist but they
neglect to offer an easy, quality, step-by-step guide. Chart
Logic takes a complete beginner through all procedural
steps necessary to use, buy, and sell cryptocurrencies. But
the analyses, techniques, and strategies taught are
designed to be useful both to novice traders and those with
experience. The technical analysis and examples are based
on traditional methods but are also uniquely tailored,
crypto-centric, and come from five years of successfully
trading cryptocurrencies. Furthermore, Chart Logic offers
the first chart pattern performance statistics specific to the
cryptocurrency markets (both for Bitcoin and USD-traded
pairs), and the handbook is peppered with data-driven
insights and analysis. Finally, traders will also learn
comprehensive trade strategies and theory, including how
to apply an evidence-based approach to tackling each trade.
For new traders, terminology is defined naturally as the
handbook progresses, however, you may also skip to the
Definitions Key in the back if you do not understand a word I
am using. I try to introduce things quickly as they become
relevant. If you are familiar with trading, using exchanges
and wallets, and are uninterested in procedural steps, I
suggest you skip to Part II of the handbook and continue
with the technical and strategic sections.
Importantly, successful trading can vary drastically between
different people. Successful trading is also not something
that can be learned over night and often takes years of trial
and error before a trader feels truly comfortable with their
trading style and technique. The trading techniques I teach
in this handbook are not mutually exclusive and only focus
on a fraction of the full spectrum of technical analysis. I’ve
found over the years that a simple trading strategy is a very
effective strategy. I focus more on mastering core concepts
rather than trying every widget and indicator under the sun.
Indeed, many seasoned traders can tell you an overly
complicated trade strategy is not often useful and may show
inexperience. But this should not discourage you from
experimenting with techniques not highlighted in this
handbook, and it’s not to say these methods are the only
way speculators successfully trade a market. Each trader
must find for themselves what works and what doesn’t.
Part I of the handbook will briefly familiarize you with some
of the core concepts of cryptocurrencies and leads a new
user through wallets, exchanges, and trade procedure. Part
II is dedicated to learning technical analysis from the
perspective of never having seen a technical chart before to
becoming fluent enough to trade. All examples for the
technical analysis section are carefully cherry-picked from
the cryptocurrency markets and are catered toward crypto-
centric trading. Many reflect actual successful trades. The
chart pattern analysis section offers performance-based
statistics on all commonly occurring continuation and
reversal patterns in the top 100 cryptocurrencies. Nearly
400 charts and more than 1,800 patterns were examined
and tediously cataloged for this study. Feel free to examine
all of them at chartlogic.io . Part III discusses trade
strategies and theory, which covers proper risk
management, introduces my evidence-based trade
approach, discusses trading different market conditions and
different types of cryptocurrencies, and offers various
insights and considerations I wish a trader had taught me
when I first started trading. Together, the procedure,
technical analysis skill building, and essential trade
strategies create the holy trinity necessary to trade
cryptocurrency markets with confidence and discipline. Let’s
get started!
I. PRELIMINARIES AND
TRADE PROCEDURE
 CHAPTER 1:
PRELIMINARIES

Blockchain and Cryptocurrency – What Is It?

In layman’s terms, a blockchain is a data ledger that uses a
network of computers to create, verify, and secure
transactions. Digital containers filled with transactions
(“blocks”) are linked together to form easily verifiable and
secure transactional ledgers. Key properties of blockchains
are their immutability, security, and decentralization.
Blockchains are constructed under two dominant consensus
algorithms: Proof of Work (POW) and Proof of Stake (POS).
Both systems share similarities with the key difference
being who creates blocks of transactions and how. Under
POW, computers called “miners” take bundles of
unconfirmed transactions and compete to solve difficult
equations required to discover a new block to contain them.
When a miner successfully completes an equation, it’s
rewarded and forms the next block of validated
transactions. Completed blocks are broadcast to a greater
network of node computers that verify the validity of the
transactions and the block’s conformance to the rules of the
network. Completed and verified blocks are strung together,
creating an irreversible digital chain. Under POS, rather than
using the heavy computational work of miners to create
blocks of transactions, validator computers (“stakers”) are
randomly or semi-randomly chosen and rewarded for
forging blocks based on collateral they stake to the network
in the blockchain’s native currency. Dishonest validators are
punished and can be compelled to relinquish their stakes.
Cryptocurrencies (cryptos) are digital assets issued on a
blockchain that are used for transactions such as payment
and fees, and also for rewarding and incentivizing network
participants. Users can send cryptos to each other like
digital money, and cryptos are often used as a reward
system to incentivize those who mine or stake to create and
validate the blocks of transactions. In other words, cryptos
are both a payment system for anybody wishing to use the
software and a payment reward for the participants
supporting the network with computing power.
Numerous types of blockchains and blockchain mechanics
exist. These definitions barely scrape the surface of the
complicated technology and are merely a simple
introduction. I suggest interested readers take the time to
educate themselves about the wonders of blockchain
technology. However, for the purpose of this handbook, we
are interested in the speculative aspect. We are in it for the
money, not the tech. So, the introduction is brief.
Speculation
In addition to being used as a means of payment and
reward, cryptos are traded on exchanges like a commodity
or stock. Conceptually, as cryptos become more widely used
and adopted, their value rises or falls based on user
demand, scarcity of the asset, and in some cases cost of
production. For example, Bitcoin will only ever have twenty-
one million coins and nearly all of them have already been
mined and put into global circulation. Mining today takes an
enormous amount of electricity and it’s costly to produce
even a single bitcoin. Moreover, as more people buy, HODL,
send, and spend Bitcoin, the less there is to go around.
Thus, the price fluctuates over time because of use,
scarcity, and production.
Today, thousands of cryptos exist serving scores of different
purposes. Many are run by start-up companies, which held
token sales called Initial Coin Offerings (ICOs) to fundraise
their inception. These thousands of cryptos are offered to
speculators on various exchanges where the public can buy,
sell, and otherwise speculate on the future value of the
digital assets. Importantly, traditional market analysis
techniques like technical analysis may be applied to the
crypto markets to aid speculators in their quest for fortune.
This is the focus of the Chart Logic handbook.
Learn to Trade – Don’t Just Be a HODLer
A driving purpose of this handbook is to outperform the
average holder or “HODLer.” A HODLer, by original
description, was an investor who self-admitted he could not
trade well. Today, the term is popularly used to define
anyone who is holding cryptocurrency for the long haul. In
other words, a long-term cryptocurrency investor. The
famous term comes from a 2013 Bitcoin forum post where a
Bitcoin trader goes off on a tirade about his inability to
effectively call the highs and lows of price action, which
presumably resulted in a loss of bitcoins in his stack. In the
flurry of his emotional rant, the Bitcoin holder drunkenly
writes that he is just going to “HODL” his Bitcoin for the long
term rather than trade it. HODL became an iconic typo for
the word HOLD and is commonly used today by crypto
enthusiasts.
A HODLer enters the market, sometimes strategically or
sometimes arbitrarily, but generally they intend to hold for
many years under the theory that cryptos will increase in
value over time regardless of the slumps and swings. The
HODLer philosophy is not necessarily wrong. So long as
cryptos continue to exist, some of the most useful and
enduring assets will likely continue to appreciate due to use,
supply, and demand. Historically, successful and enduring
markets are on one long bull run with intermittent bear
cycles. Just look at the Dow Jones since its inception.
However, even assuming crypto’s continued and fruitful
existence, a HODLer is still missing the ability to capitalize
on the bearish downturns and swings, many lasting months
or even years, resulting in catastrophic losses. A HODLer
who is also a proficient trader has the ability to maximize
profit during all market conditions, enhancing short-term
and long-term capital gains along the way.
Crypto goes through viscous market cycles where all too
often new market participants enter the game at the wrong
time. Newcomers routinely join during the peak of a bull run
when excitement is euphoric, the headlines are hyperbolic,
and the charts are ripe for profit taking to those who got in
early. The implosions, however, can be long-lasting.
Undeniably, if you bought the 2017-2018 crypto top, with
many altcoins down 90-98%, you would still be HODLing at
a massive loss today. To put a 98% loss into perspective, a
decline in asset value from $1 to $.02 per coin would take
4,900% to regain the all-time high. Notably, 2017 was not
the first occurrence of such a steep or enduring crypto
collapse. Even buying midway through a bearish cycle can
be excruciatingly painful because, as you will learn later,
even the smallest common chart patterns like pennants and
flags tend to drop an asset’s value by 30-40% in a matter of
days.
Thus, learning to trade is all about timing and patience.
Crypto has very profitable periods and very painful periods,
and the goal here is to weather both and come out with
heavy pockets. Not only can a trader capitalize on the
downturns and swings, but a trader who understands
market behavior and technical analysis can also time their
entries, seeking only to enter markets in areas of maximum
financial opportunity. This takes patience because the best
time to enter a market is often when nobody else wants to.
But this doesn’t mean every time the market goes down, it’s
a good entry!
If you HODL, do it wisely! Don’t simply accept every
punishment the crypto markets deal. Learn to trade,
capitalize on different market conditions, take profit,
and protect yourself from market annihilation . I am
not anti-HODL, merely “anti-HODL at all costs and to my
own unnecessary financial detriment.” I consider HODLing a
long-term (multi-year) investment portfolio of very
reasonable size, given the high risk and in light of your
individual financial situation, to be an acceptable part of a
long-term trade strategy.
Still, most of my profit remains in dollars with the goal of
accumulating more dollars. As of yet, fiat currencies are still
what pays the bills. If you are a HODLer looking to trade or
are new to crypto and decide to take the road of both a
trader and HODLer, I suggest you pay particular attention to
Chapter 12 near the end of the handbook on Fundamental
Analysis, Averaging Down, and Hedging. For everyone else,
the techniques taught in this handbook cater toward swing
and position traders who hold positions open over the
course of days, weeks, or months. Don’t worry, I define the
different types of traders in detail in subsequent sections.
 CHAPTER 2:
USING EXCHANGES AND WALLETS

Tokens vs. Coins

Technically, not all cryptos are considered coins. Rather,
they are either tokens or coins. A coin is a crypto with its
own native blockchain and may be actively mined or pre-
mined at launch. A token is issued on a blockchain but is not
the native coin of that blockchain. For example, the
Ethereum blockchain hosts hundreds of “ERC-20” tokens
issued for ICOs and other purposes, but Ethereum is the
native coin. Bitcoin is of course a coin. The easy way to
remember the difference is each blockchain issuing a crypto
only has one coin and may have many tokens.
Exchanges
An exchange is a trading platform where market
participants can buy, sell, or otherwise speculate on a
crypto. Similar to a stockbroker, the often-centralized
platform offers a medium of exchange where buyers can
post their “bids” and sellers can list their “offers.”
Exchanges vary widely depending on target audience, but
for the purpose of trading, I will focus only on exchanges
that cater toward technical traders rather than “buy and
hold” retail investors. Traders will likely need to use more
than one exchange if they want to enjoy the full diversity of
assets traded across the space. Moreover, different
exchanges offer different methods of trading. To utilize the
full spectrum of speculative tools, a trader may also need to
use various exchanges. Thus, in this handbook, I mention
numerous exchanges and equip a new trader with the skills
necessary to trade seamlessly between them.
Exchanges should be both liquid (supported by substantial
buyers, sellers, and market makers to ensure market
stability and the ability to exchange large sums of a crypto)
and ideally have a reputation for safety and care for user
funds. Each trader must decide for themselves what
exchange to use and what is an acceptable risk. I implore
each trader to research exchanges heavily before using
them as no exchange in crypto is completely fail safe.
Below, I highlight a few exchanges based on different use
cases.
Binance.com is the largest exchange in the world. Binance
offers hundreds of trading pairs, margin (leverage) trading,
and high liquidity. Binance also has a notable reputation for
user care since it was hacked for $40,000,000 and ensured
no users suffered a loss. [i] The wide variety of markets and
speculative tools make Binance a one-stop shop for many
traders.
Traders interested in small-cap cryptos that aren’t utter
garbage may want to consider Kucoin.com. Kucoin is the
only low-cap exchange I support because they do their
homework on vetting projects and offer a multi-step security
process, which makes the exchange feel “safer.” However, I
am not a security expert. Notably, liquidity for some market
pairs on Kucoin will be low because many of the coins have
tiny market capitalizations and are equivalent to penny
stocks. Only use this exchange if you intend to trade its
unique array of quality low caps as its liquidity for large-
caps is pretty low. If you are interested in trading small-cap
coins, make sure to read the sections on altcoin trading and
low-cap trading carefully in Part III of this handbook.
Lastly, I will mention Bitmex.com here, with a caveat,
because it offers the easiest and one of the most liquid
margin trading platforms in the world. A user can easily
sign-up with just an email address, deposit Bitcoin, and
begin trading with leverage in minutes. Traders are warned
Bitmex has a mixed reputation and suffers frequently from
issues like slippage, which I define and go into in detail in
subsequent sections. Still, Bitmex is a margin trader
favorite. I caution it should be used with care and only by
experienced traders or only on testnet by inexperienced
traders. By far, it has the most casino-like feel and is
designed to make you feel pressure to keep trading. So, be
warned, it’s not a good place to learn to trade responsibly. If
you decide to use Bitmex, never make trades based on
opinions in the troll box!
Legal Compliance on Exchanges: KYC and AML
You will notice on many exchanges new accounts are limited
in what they can trade if they have not gone through legal
compliance steps like Know Your Customer (KYC) and Anti-
Money Laundering (AML) registration. This requires the user
to submit identification like a passport or national ID,
current billing receipt confirming residence, and a current
photo of the registrant. However, if a user does not wish to
submit such information, they may still be allowed to trade
but will be subject to a daily withdrawal limit. For example,
on Binance or Kucoin, an unregistered account is limited to
withdrawing two bitcoins’ worth of value in a twenty-four-
hour period. Many traders find it acceptable to trade without
registration and do not have a problem with only being able
to move ~$20,000 or so each day.
Depending on various geographic jurisdictions, customers
may also be barred from participating on an exchange. For
example, citizens of the United States are not allowed to
trade on major exchanges like Binance (with the exception
of Binance.us) or Bitmex as this goes against the Terms and
Policies of these exchanges. Whether this is widely
respected is another question and is not a subject of this
handbook. But users should familiarize themselves with the
Terms and Policies of the exchanges they choose to use. If a
user violates such policies, they may risk their accounts
being frozen, funds being lost, or other consequences.
Two-Factor Authentication
Critical to traders, is the use of two-factor authentication
(2FA). For those unfamiliar, 2FA provides an additional step
of security by requiring, in addition to a login password, a
string of numbers provided concurrently either through
email, text, or applications like Google Authenticator.
Different users may prefer different methods; however, I
prefer not to use any email address as a form of 2FA when
given the option of text or Google Authenticator. You can
activate 2FA on many exchanges by going into the account
settings or security settings sections.
Wallets and Transactions
Like a bank account, each crypto trader needs a digital
wallet to store their asset(s). Each blockchain requires its
own unique wallet. Wallets are easily generated and come
with both a public and private key required to receive and
send transactions. Similar to a bank routing and account
number, an “address,” derived from the public key, is
comprised of numbers and letters, which users can share
with each other to receive funds. The private key is the
permission key used to send crypto from that address and
should never be shared. Transactions occur when one user
sends another user, on the same blockchain, a crypto from
wallet one to wallet two. Traders must familiarize
themselves with sending and receiving transactions, which I
discuss in the next few sections.
Exchange Wallets
As briefly introduced, owning a cryptocurrency requires
each user to possess a wallet in which to store it. Exchanges
offer all users unique wallets to store each individual crypto
sold on that exchange. This creates a frictionless system
where traders can deposit, withdraw, buy, and sell hundreds
of different cryptos without worrying about how or where to
store them. However, as detailed below, a general practice
in the space is to keep positions or holdings not anticipated
to be sold anytime soon off of the exchanges so as to
mitigate risk.
Paramount to the ethos of many cryptocurrency market
participants is the idea that each person is their own
banking entity in control of their own funds. The community
has a saying, “not your keys, not your Bitcoin” (or crypto).
This means that if you are not in possession of your own
private keys issued to each unique wallet, then you do not
actually possess your crypto. Thus, if you hold your
cryptocurrency in the wallet of an exchange, they are in
control of the wallet’s keys, and, consequently, your funds.
Accordingly, you subject your assets to the risks associated
with that exchange, so you must choose your exchanges
carefully.
Exchanges have a long history of hacks and thefts resulting
in significant losses to users who trusted them. The most
famous hack was Mt. Gox in 2013, where 740,000 bitcoins
(current value more than $6 billion) were stolen. [ii] To this
day, litigation is ongoing to get user funds back. Since Mt.
Gox, dozens of exchanges have suffered hacks. In 2019
alone, some of crypto’s most popular and largest exchanges
like Binance, Bithumb, and Cryptopia were hacked for tens
of millions of dollars. [iii] Cryptopia went bankrupt as a result.
[iv]

Unfortunately, as traders we must subject ourselves to the

risk of using exchanges. Thus, it’s vital to pick them
carefully. For the purpose of trading, exchange wallets will
suffice because a trader needs to be able to sell a position
quickly if it sours. However, whenever possible a trader
should consider keeping all unnecessary funds off
exchanges.
Decentralized Exchanges
Decentralized exchanges (DEXs) exist where users are
supposed to be able to trade without trusting and risking
their assets on a centralized exchange, for example, the
ability to trade directly from a personal wallet or cold
storage device. To date, of the numerous platforms claiming
to be decentralized, none in my opinion are ready for
serious technical trading. They either lack trading pairs, lack
sufficient liquidity to trade effectively, or lack the tools
necessary to trade technically, and several have centralized
components. One day, however, when truly ready to
compete with centralized exchanges, a DEX would be an
ideal solution for risk management and technical trading.
Cold Storage Devices
In layman’s terms, a cold storage device is a hardware chip
similar to a USB, but designed for security, that holds crypto
wallets and their keys off-line for users. One device can host
numerous unique wallets for dozens of different cryptos and
is backed up by a single seed phrase generated when the
user activates the device. This seed phrase must be
guarded in paper form and should never be shared,
photographed, emailed, or otherwise uploaded to a
computer or you risk having it discovered and your funds
lost. Anyone who has this seed will be able to access your
funds.
To access the cold storage wallets, a user merely plugs in
the device like a USB chip and follows the instructions
provided by the manufacturer. For example, a Trezor device
requests the user’s numeric pin number, and, when signing
into the device, the user must enter their pin using a
rotating number pad. Devices generally have their own
software with a wallet interface accessible on the
manufacturing company’s website. Still, wallets may also be
linked to third-party services like Myetherwallet.com, which
is commonly used to access Ethereum-based wallets from
various cold storage devices. Keep in mind, an Ethereum-
based wallet can hold any ERC token and thus one wallet
can store hundreds of different tokens. One device can also
hold many different Ethereum addresses.
Numerous cold storage devices exist, but I only use those
from the most reputable manufacturers. For example, a
Ledger, Trezor, or KeepKey device. Never buy a device
secondhand and always buy it directly from the
manufacturer. Each device has a tamperproof seal showing
it has not been used. If you buy a used or fake device or get
tricked into using fake software, you risk losing your funds
to a compromised device. Lastly, before purchasing, users
should research what cryptos are supported by each device
as some devices provide more options than others.
All serious crypto traders should own a cold storage device
to store holdings they are not actively trading. The process
of moving funds to cold storage takes mere minutes by
making a simple withdrawal from any exchange, which I
cover in the next section. Your device can receive funds
regardless of whether it’s plugged in, but, to move funds
out, it must be connected and the security procedures of
that device to make a withdrawal must be followed.
Funding an Account, Deposits, and Withdrawals
Before you can trade, you must familiarize yourself with the
process of moving money and assets between exchanges
and your wallets. When introducing new users to the world
of crypto, this area tends to highlight a significant flaw in
user experience. It’s challenging and not always intuitive for
new users. Not all exchanges allow users to deposit directly
from their bank account, so this process is often two steps:
1) deposit money from a bank account to a retail-focused
“buy and hold” exchange like Coinbase, Gemini, or another
widely trusted exchange in your country; and 2) purchase a
major crypto like Bitcoin, Ethereum, or a stable coin from
that exchange and move it over to a technical trading
exchange like Binance, Kucoin, Kraken, or Bittrex. Some
exchanges allow for you to “buy” crypto using a credit card,
but this may have strong limitations, fees, or otherwise not
be possible for many traders.
To make a deposit or withdrawal of a crypto, look for the
“Wallet,” “Deposit,” or “Withdrawal” tabs, which are
frequently located on the top navigation bar of the
exchange website. Then select the crypto you would like to
send and input the address and amount. When you are
making a deposit or withdrawal, treat it with the same care
as you would if you were making a bank deposit or
withdrawal. When sending or receiving, it’s critical a user
copies the address of the correct cryptocurrency. For
example, if you are depositing Bitcoin, you MUST be
depositing to a Bitcoin address. If you make a mistake, you
will lose your money. I do not suggest sending Bitcoin ever if
you can avoid it because Bitcoin is slow and can take hours
to arrive. Many stable coins (USDT, PAX, USDC) or altcoins
like Ethereum, Litecoin, and XRP may be sent quickly
between all major exchanges. Again, always double check
and make sure you are sending the right crypto to the right
address.
Stable Coins
A stable coin is a crypto token designed to always maintain
a stable value based on a government-issued fiat currency
(i.e. dollars, euros, yen, yuan, etc.). Stable coins allow fluid
trading between cryptos on exchanges without having to
constantly shift fiat money back and forth between bank
accounts and exchanges. The concept behind a stable coin
is each coin stays pegged to the value of one dollar, or
other fiat currency, and each coin is fully backed by a real
dollar held by the company offering the stable coin. So,
traders can easily buy or sell a crypto using a stable coin
and not have to convert the proceeds into fiat right away.
Notably, while stable coins exist for other fiat currencies like
euros or yuan, the most common ones are dollar backed.
Moreover, traders can seamlessly send stable coins to other
exchanges because they are tokens issued on various
blockchains. For example, Tether (USDT) offers tokens on
the Ethereum, Omni, and Tron blockchains, whereas Paxos
(PAX) is an Ethereum ERC-20 token. A trader can even send
these stable coins to their own cold storage device and truly
act as their own bank. This is a key strategy for traders who
don’t plan on using the funds soon and want to ensure funds
are autonomous and safe from exchange hacks or other
flaws.
Some stable coins have a long history of suspicion.
Famously, the largest stable coin, Tether, has been accused
of market manipulation and of not harboring sufficient
assets to back the USDT tokens, claims they vehemently
deny. Ongoing litigation is currently fighting such
accusations in court. [v] Importantly, I suggest traders
research every stable coin very carefully and decide what
the best choice is for themselves. Several including Paxos
(PAX) and USDC have registered with regulators to try to
demonstrate their trustworthiness. [vi] I prefer to only use
stable coins that make an effort to work with regulators or
current regulations.
One of the shortcomings of stable coin choices is the lack of
cryptocurrencies paired with the less popular ones or the
lack of liquidity traded against less popular ones. By far,
Tether has the most crypto pairings on major exchanges and
its pairs are often the most liquid. In other words, you can
buy or sell the most cryptos using Tether and those markets
are supported by a thick volume of buyers and sellers
compared to some of Tether’s smaller competition.
However, I prefer not to hold Tether for long periods of time
because I am unsure how I feel about their business. So, I
generally trade my USDT for PAX or USDC if I don’t plan on
using it straight away. Generally, you can trade all one-
dollar-backed stable coins for each other at a near 1:1 ratio.
After all, they should each represent a single dollar backed
by a single dollar’s worth of assets.
 CHAPTER 3:
TRADER TERMINOLOGY AND
TRADE EXECUTION

Circulating Supply, Price, & Market Capitalization

This section is extremely important for new traders. All new
traders MUST understand the differences between asset
price, circulating supply, and market capitalization! Asset
price is the current value of one unit of the asset. For
example, one bitcoin may cost $5,000 or one Ethereum
$150. Circulating supply is the total number of units of that
coin or token available and circulating in the world with the
potential to be sold on exchanges. Market capitalization is
the total value of all coins or tokens in circulation.
These definitions are extremely important. Not
understanding them may confuse a new trader on the value
of what they are purchasing. For example, someone may
think one Tron is cheap because its price is .01USD and “it
could easily go to $1.” However, if Tron has
66,000,000,000,000 coins circulating, and its market cap is
thus six hundred and sixty million dollars, it may not be so
“cheap” and it would take many billions of dollars of new
capital inflow to realize a $1 asset value and market
capitalization of sixty-six billion dollars. A 100x gain is not
unheard of in crypto but it’s also not a walk in the park.
Thus, asset price should always be viewed relative to its
circulating supply and market capitalization.
Moreover, new traders should be wary of the difference
between circulating supply and the potential supply. Many
cryptos have a smaller circulating supply that may only
represent a tiny fraction of the total supply. For instance, in
the example above, Tron has roughly ninety-nine billion
coins and only sixty-six billion in circulation. This means
nearly thirty billion more will still be distributed into the
market. Hedera Hashgraph (HBAR) also comes to mind for
this example, but literally dozens if not hundreds of coins
and tokens share this concern. HBAR has roughly two billion
coins in circulation. However, their coin release schedule will
increase that number to fifty billion coins over the next
fifteen years as HBARs are released to early investors. [vii]
This means if you buy HBAR today, 95% of the supply has
yet to be flooded onto the market and the increasing supply
could greatly affect future value. While this distinction may
be more important for buy and hold investors, it’s critical for
traders to also understand what they are trading. Things like
supply increases may substantially impact an open
position.
An opposing but relevant example is Bitcoin halving. In May
2020, the block reward for Bitcoin halved resulting in miners
receiving only half as many bitcoins as they did previously
for solving each block. A trader and investor may be very
interested in the implications this has on the market
because it reduces the influx of supply on the market and
increases cost of production of a single bitcoin.
Finally, traders should be curious about the percentage of
an asset held by its founding organizations or companies.
Some companies hold a majority of an asset’s supply with
the ability to swell the floating circulation immensely. For
instance, popular company Ripple and its founders started
with 100 billion XRP coins and over the years have sold
roughly forty billion of them, [viii] creating constant sell
pressure on the market. Consider possible implications of
founding organization or companies when they decide to
unload assets on the open market. I generally do not trade
assets where the teams or founding organizations horde or
control the supply.
Types of Traders
Traders are often categorized by the time frames in which
they trade. The common categories of traders are day
traders, scalp traders, swing traders, and position traders.
The particular trade strategies I teach generally cater to
swing traders or position traders, which entails traders
holding a position open for days, weeks, or even many
months and trades on patterns and signals that form over a
substantial period of time.
Day traders traditionally trade intra-day market movements
and close their positions by the end of the day. Hence, the
term “day” trading. This is because stock markets have an
open and close time, but in the crypto markets we don’t
have this limitation. Our markets run 24/7, 365 days a year.
A day trader looks to make a quick return on price action
that occurs over a short period of time and generally they
examine price action under short time frames like 15M,
30M, 1H, and 2H, which I go into further detail in Part II on
Technical Analysis. Despite not meeting the strict definition
of day trader, many crypto traders still consider themselves
to be day trading even if that means they are up at 3am to
make a trade.
A scalp trader plays on even smaller time frames than a day
trader and may play a chart minute-by-minute. They look to
make quick plays off of micro movements in a market. A
swing trader positions themselves on trades that may last
several days or weeks. Finally, a position trader trades with
the intent to hold the position open for many weeks,
months, or even years – capitalizing on the long-term
movements of an asset rather than concerning themselves
with the short-term movements.
My trade strategy avoids short time frame trades and bets
on longer-term chart development because I notice lesser
degrees of accuracy with technical indicators and analysis
on lower time frames. Therefore, I do not recommend new
traders start by scalp trading or day trading. However, I
often follow short time frame setups and practice on them
hypothetically as a way to observe price action and watch
the elements of technical analysis play out in real time. If
you are interested in trading shorter time frames, the
technical analysis taught still applies. But you should be
prepared for faster market movements and open positions
will take a greater degree of caution, care, and monitoring.

The Bulls and the Bears

If you’ve ever watched the news, you’ve probably heard the
terms bull and bear markets. Simply stated, a bull market is
a market where the buyers are in control and a bear market
is a market where the sellers are in control. Generally, bull
and bear markets show a sustained trend over months or
years. Market participants betting the price of an asset will
go up are referred to as the bulls because bulls buck their
horns upward in a fight. Market participants betting the
price of an asset will go down are called bears because
bears paw and claw in a downward motion in a fight. If
someone say they are bullish on an asset, they are saying
they think its price will rise. If someone says they are
bearish, they are saying they think the price will fall.
Importantly, during a bull market, there will be many “dips”
and downturns but a key aspect is the general price action
continues to make higher high points and lows tend to trend
higher. Conversely, in a bear market, there will be spikes
and bounces but the general price action continues to make
lower high points and lower lows.
A widely accepted definition of when a market switches
from one to another, among stock traders, is a gain or loss
beyond 20% of market index’s recent value. For example, a
bull market may emerge when, during a downtrend, a stock
market index gains 20% of value since its bottom low, while
a bear market may emerge when a stock market index loses
more than 20% from its high. This definition, however, is
more applicable to stock markets rather than crypto
because crypto assets regularly move 20% in a single day.
Moreover, even applying this definition in the stock market
could be troublesome. Take for example the recent stock
plunge due to the coronavirus. Stock indexes dropped 30%
and then bounced more than 20%. News outlets like the
Wall Street Journal applying this classic definition were
eager to say stocks were back in a bull market and just a
week after declaring a bear market. [ix] Applying this classic
definition so rigidly may cause confusion with investors. In
the case of the Wall Street Journal, it may even be reckless
as they lead their readers into thinking the markets are a
safe buy again in bull territory when they may not be.
Sometimes you just won’t know whether the market has
switched from bearish to bullish or bullish to bearish until
substantially after the fact. I generally look to the volatility
beyond one major move and see whether the trend of lows
and highs changes course.
Buying and Selling vs. Longing and Shorting
While many crypto traders use the terms “buying” and
“longing” or “shorting” and “selling” interchangeably, it’s
important to note how these terms can be used differently.
To buy a crypto means to actually buy the asset and hold it
in a wallet. Similarly, to sell an asset means to rid yourself
of the possession of that asset through its sale either for
another asset, fiat money, or a stable coin.
Many traders will say they are “long” on an asset when they
buy it, which generally is accepted. But, one can go long on
Bitcoin or other cryptos without purchasing the underlying
asset through derivatives like options (right-to-buy-later),
swaps (agreement to exchange instruments), or futures
(obligation-to-buy-later). To go long on a crypto generally
means you are betting that a crypto will increase in price
and you have an expectation of profit by selling your
position on that asset at a later time. This could be achieved
by either selling the actual asset for a profit (if you
purchased the asset itself) or by closing a position that bet
on the asset’s rise when the price increases. For example, if
you bet on Bitcoin going up through a futures contract and
you sell your position before the expiry date.
However, the same interchangeability is not as commonly
said for the terms “short” and “selling.” Selling requires a
trader own the asset and dispose of it whereas a short
means a trader makes a bet, generally on loan, [1] that an
asset will go down. When someone says they are “short” on
a crypto this means they are literally betting against the
price rise of the crypto; they are betting the price of that
crypto will go down. Whereas if someone “sells” their
crypto, they lock in a capital gain or loss but, unlike a short,
they have no expectation of profiting further if the crypto
they sold goes down. A seller may be waiting to rebuy lower
or may later decide to do so, which may act effectively
similar to a short. However, unlike a short, selling a crypto
does not compel a loss or potential liquidation if an asset
rises against the position.
To put this into context, an easy example is the Bitmex
perpetual Bitcoin swap. Traders use Bitcoin to bet in favor of
(long) or against (short) the future value of Bitcoin. Traders
buy and sell swap contracts (valued in USD) against each
other asserting either the price will go up or the price will go
down. If the price goes up, the shorts pay the longs. If the
price goes down, the longs pay the shorts. It’s sort of like an
endless Conga Line Dance where participants hop on and off
and have to settle their wins or losses as they leave the
dance.
What’s a Squeeze?
You have probably heard someone on television, a podcast,
or the radio talk about a squeeze when referring to stocks
on the evening news. A squeeze occurs when a market
moves in the opposite direction of a market participant such
that the market participant is forced to close their position
and buy or sell. In a short squeeze, short sellers are
compelled to close their positions and purchase an asset
because the market is rising against their position
squeezing them out of it. This further drives the price of an
asset up. In a long squeeze, the contrary is true, and buyers
are compelled to sell their positions because the market is
going down – squeezing them out of it. This further drives
the value of the asset down.
Margin (Leverage) vs. Spot Trading
You will hear traders frequently use the terms “margin” and
“spot” trading. For instance, a trader may say they are
“spot-long” or “margin-long.” The difference is simple: a
spot order is one where the trader buys the asset from their
own funds, while a margin order is where the asset is
speculated on through a loan. With margin, a trader can
long or short more of an asset than they could normally
afford by leveraging the funds they have as collateral for a
larger trade. In other words, margin is the amount of fiat
money or an asset (i.e. Bitcoin) required to open or keep
open a leveraged trade. Say I have a $1,000 balance, but I
want to bet $10,000 on Bitcoin going up. I can do this by
making a borrowed order (on margin) using 10x leverage.
The lender (often the exchange), will put out the additional
$9,000 I need to make the trade. This means, however, that
my balance will lose value at ten times the rate it normally
would if I did not leverage the trade. So, a 10% decline in
Bitcoin’s value would wipe me out. Often, on margin, when
you lose the value of your balance (including any
fees/interest paid), in this case $1,000, the trade gets
liquidated, the lender is repaid, and all funds are lost. It’s
important to read and understand the differing rules and
debt obligations for each exchange before margin trading.
Some exchanges that offer margin trading will only allow 5x
leverage, while others like Bitmex offer 100x leverage or
even 125x leverage at Binance. Importantly, NO TRADER
new or experienced, should ever use anything close to 50x,
100x, or 125x leverage. You will get liquidated with the
smallest market move, and the probability of timing a trade
with such precision is so low it reduces the “trade” to mere
gambling, and very poorly favored gambling at that. Many
experienced traders when trading on margin use only 2-5x
leverage.
How to Execute a Buy and Sell Order
When you are ready to make your first trade, how do you
execute it? On exchanges designed for a basic buy and hold
investors, there is likely just a simple “Buy” or “Sell” button.
However, as a technical trader you must be familiar with
several types of orders and how to execute them. A trader
must know how and when to use limit orders, stop-limit
orders, market orders, and stop-market orders. To execute a
trade, head over to a “Markets” section of an exchange and
select a crypto you would like to trade. All exchanges
display some variation of a chart; an order book with
unfilled bids and offers; and a section to select, input, and
execute a trade.

Limit Orders
The limit order is your standard buy and sell order where
you set the bid or offer price. If the bid price is below the
current price of the asset, then it will add your order to the
existing order book. Similarly, if your sell offer is above the
current trading price, then it will add your offer to the sell
side of the order book. Your limit order will execute when the
price reaches that point and when sellers sell into your bid
or buyers buy into your offer. Keep in mind, other traders
will have offers or bids at the same price that need to be
filled too.
For example, if Bitcoin is trading at $5,000 but you think it
will go down and you want to buy at $4,500, you can place
your limit order bid for $4,500. Or, if Bitcoin is trading at
$5,000 and you are looking to sell but you think it will go up
to $5,500 first, you can place a limit sell order for $5,500.
A limit order will execute immediately if you place a bid
above the current trading price or sell offer below the
current trading price. For example, if Bitcoin is trading at
$5,000 and you place a limit order bid at $5,001, your order
will execute and fill to the extent there are sellers with offers
at $5,001. Conversely, if Bitcoin is trading at $5,000 and
you place a limit order sell at $4,999 your sell order will
execute to the extent there are buyers with bids at $4,999.
You may wish to place a limit order some value farther
above or below the current trading price to ensure it fills
(i.e. $5,050 or $4,950). Your limit order will fill at the earliest
price where there is liquidity.
Stop-Limit Orders
The stop-limit order is a conditional order that allows to you
to set a limit order upon an asset reaching a future price.
For your limit order to be placed, the stop price must be hit.
You add an extra condition (“stop”) to the equation telling
the exchange when you want it to place your order. To make
this order you give the exchange two inputs: 1) the stop
price to trigger the order, and 2) the limit price (bid or offer)
where you want to buy or sell. The limit price should never
be greater than your bottom line for where you want to buy
or sell an asset. Still, you want to place your limit order such
that it has a high chance of execution. The stop-limit order
gives a trader the greatest control over a trade that cannot
simply be input as a simple bid or offer (limit).
For example, if Bitcoin is at $5,000 and I expect the price to
breakout and accelerate if it breaches $5,100, then I can
place a stop-limit order at $5,101, telling the exchange to
set a limit buy at $5,125. Upon $5,101 being hit my order
will be placed and will execute and fill so long as sellers
have offers at $5,125 or below. The reason why I would not
just put a stop-limit order at $5,102 is because if the price
accelerates too quickly my order may be skipped if there
are insufficient offers for me to buy at $5,102. My order may
very well fill at $5,102 or at the lowest price where my bid
can be filled, but I’m giving the exchange some latitude to
ensure it fills. A simple way of thinking about this is setting
your limit input for the maximum price you are willing to
purchase an asset at.
As another example, if Bitcoin is $5,000 but I expect the
price to fall sharply if it breaks down below $4,950, I can set
a stop-limit order telling the exchange to place a sell order
upon hitting $4,949. My stop price would be $4,949 and I
could set my limit price at $4,925. Thus, I would be willing
to sell my bitcoin to anyone bidding as low as $4,925 upon
the break of $4,949. Ideally, I would hope my sells get filled
higher, at $4,949, but this allows some wiggle room.
Market Orders
A market order is an order that executes a buy or sell at the
earliest market price. It will match your bid or sell offer to
the closest opposing bid or offer without restriction. This
order sacrifices specificity and caution for ease of use. While
this is the easiest order to use, I think traders should rarely,
if ever, use a market order. Market orders can easily cause
you to enter an immediate losing position if the market is
moving quickly.
 Stop-Market Orders
Finally, the stop-market order is the conditional version of
the market order. Similar to a stop-limit order you input a
stop price for your market order to trigger. However, rather
than placing a limit on the price you are willing to buy or sell
at, the order executes against the earliest opposing bids
and offers without restriction.
For example, if Bitcoin is trading at $5,000 and I think it will
have an explosive move upward if it breaks above $5,100,
then I could put a stop-market buy order for $5,101.
However, this could be an extremely risky move. If I am so
convinced the price of Bitcoin will explode above $5,100,
then I should be cautious about where my market order will
execute. Often times, upon a big breakout, the price of
Bitcoin can rise sharply and I may get an order filled
substantially higher than what I was expecting. This is what
we call slippage, which I go into more detail on in the
sections below.
To be frank, with few exceptions, stop-market orders are
used by amateurs who don’t know the smarter way to trade.
You can fulfill the same purpose but with far less risk using
the stop-limit order. The stop-limit order lets you decide for
yourself what an acceptable amount of slippage is and will
not execute an order that will harm you beyond the
conditions you have pre-determined.
Stop-Loss
A stop-loss is an order set by a trader to close a position
when their trade goes south. A stop-loss can be a stop-
market order or a stop-limit order, which closes at a future
price to mitigate losses or secure gains. For example, if I
buy a bitcoin for $5,000 but I think that if it goes below
$4,900 it will crash. I will set stop-loss order for below
$4,899 to sell my bitcoin and exit my position. If I were
short, I would set a stop-loss at an acceptable point of loss
above where I entered. I suggest using a stop-loss for every
trade that is not a long-term position trade where you are
hoping to capitalize over many weeks or months. Consider
the parameters of your stop-loss carefully. If you place a
stop-loss too low, it may cause an unacceptable loss if
triggered. However, a stop-loss too close to an entry may
get triggered on a small countermove before an asset
continues the way you were thinking.

Slippage
Slippage is a term coined for when a market quickly moves
up or down with insufficient liquidity causing traders’
positions to be skipped or orders to be executed
significantly above or below where a trader anticipates. For
example, say Bitcoin is trading at $5,000 and you unwisely
place a stop-market short order at or below $4,800 because
you think if Bitcoin breaks below that level it will dump. As it
turns out, you are right! However, everyone else thinks so
too and the market cannot support the amount of selling at
that level and quickly drops to $4,650 where your market
order finally executes before recovering back to $4,800. You
have just been a victim of slippage and your short is already
substantially underwater. Unfortunately, slippage is very
common on leverage exchanges and should be anticipated
frequently.
One way to avoid significant slippage is by using stop-limit
orders delineating the maximum range you are willing to
enter the trade. Your order may be skipped and not filled if
the market slips quickly below your limit range but at least
you will not be a victim to a market order executing far
below where you anticipated.
Finally, account for slippage when closing a trade as well.
For instance, if you have a short in play but the market is
rising if you have your stop-loss set as a stop-market order,
you risk your short getting closed unacceptably higher than
you anticipate. However, if slippage causes your stop-limit
stop-loss order to be skipped you may suffer the same
outcome or even liquidation. This is why traders need to
carefully account for slippage and be careful with high
leverage trades. Unfortunately, slippage is an issue that
cannot be completely avoided, particularly if you margin
trade.
Hidden Orders and Spoofing
Many exchanges allow for hidden orders. A hidden order is
an order you will not see on the order book and is
intentionally hidden by the buyer or seller. Hidden orders
may be used when someone wants to accumulate or discard
a lot of a crypto without letting the market know. For
instance, if a trader posts a large bid or offer (often called a
“buy wall” or “sell wall”) it may influence other traders to
buy or sell because they see someone is looking to
accumulate or unload a large quantity of an asset. This can
be counter-productive to the posting trader because it may
cause their bid or offer to be out paced by tagalongs. Thus,
by hiding the order, a fat pocket trader can accumulate or
discard a crypto without influencing the market.
“Spoofing” is a widely illegal market manipulation where a
trader intentionally puts up fake buy or sell walls to
influence the market. A spoofer will remove the buy or sell
wall when traders start to consume it because they do not
actually want to take that position. Often the ill-intentioned
trader will make orders in the opposite direction of where
they want the market to go. For instance, a spoofer may put
up big orders on the buy side to create the illusion of strong
demand with the hope the price will go up. This may be
because the culprit genuinely wants to push the market up
or they may have sales offers they want to drive the price
into. Similarly, such a trader may put spoof sell orders to
drive the price down. This may be done to accumulate and
fill bids or simply to manipulate the market lower to power a
pre-existing position.
Spoofing is extraordinarily common in crypto. If you are
trading on a leverage exchange like Bitmex, it’s important
not to give much, if any, weight to the order book. You may
see millions of contracts “supporting” the price when they
will just disappear in a minute or two. Never trade off of
existing orders. Consult the chart and apply the techniques
of technical analysis. As a general rule, the order books
cannot be trusted and do not accurately and consistently
indicate the future movement of the asset.
Exchange Fees and Tips for Reducing Them
Traders should be mindful of the varying fees at the
exchanges they trade. Some exchanges like Coinbase and
Gemini for “buy and hold” investors charge insane rates as
much as 1-2% per trade. On technical exchanges like
Binance, Bitmex, Kucoin, Bittrex or many others the rates
will be lower. However, traders are cautioned that different
types of orders may trigger different exchange fees.
Fortunately, a few easy tips can help you save hard earned
money over time.
First, numerous exchanges offer fee discounts if you hold
that exchange’s native coin or token and the exchange may
charge you their coin when you execute a trade. For
instance, holding Binance Coin (BNB) on Binance or Kucoin
Shares (KCS) on Kucoin. Putting a small amount of money
into an exchange coin where you trade frequently can help
you save on fees over time.
Second, watch out for fees on leverage exchanges and know
how to take advantage of them. For instance, if you trade on
Bitmex and decide to market order with leverage you will be
charged the % in fees based on the number of contracts you
order irrespective of what it cost you on margin. In other
words, if you leverage $1,000 worth of Bitcoin at 10x to buy
$10,000 contracts, you will be charged the exchange fee
($10,000 x .075% = $7.50). To avoid this, rather than
market ordering you can set a limit order (not one that will
execute immediately but one that adds to the order book)
and check the “Post-Only” box, which allows you to receive
the market maker rebate. Users applying the rebate receive
a .025% rebate (.025% x 10,000 = +$2.5) as a reward for
marking making rather than paying the normal .075% fee
for market orders. [x] The idea is market makers, not takers,
get incentivized for adding to the order books. However,
traders on Bitmex should be mindful of its “funding” feature
where active positions on the perpetual market pay each
other every eight hours depending on Bitmex’s two-
component calculation (weighing the interest rate and the
premium/discount). [xi]
Third, take advantage of promotions for new traders. Many
exchanges offer fee discounts and incentives when you sign
up for a new account. It’s worth scouring the exchanges for
promotions before opening an account to see whether you
are eligible for one. Also, if you have friends who already
trade, perhaps using one of their referral codes would be
mutually beneficial.

Trade Execution Takeaways:

1. Trading on “margin” means trading using borrowed
funds, while “spot” means using only your own funds.
New traders are strongly encouraged to trade spot or,
if trading on margin, to use very low leverage.
2. Limit orders should almost always be used over
market orders.
3. Traders should watch out for slippage.
 4. Traders should ignore the order books because of the
risk of spoofing. Consult the charts!
5. Traders should be mindful of exchange fees and know
the tools to help mitigate them.

II. TECHNICAL ANALYSIS

The second portion of this handbook is dedicated to learning
technical analysis, which is the practice of studying and
predicting price action and comprises the skills necessary to
be a trader. This particular trading strategy requires
combining several methods and techniques of technical
analysis. Traders must learn how to read a chart, understand
its various moving components, and observe price behavior
using several indicators. This includes fluency and mastery
of Japanese candlesticks, volume, time frames, trend lines
and channels, continuation and reversal chart patterns, the
relative strength index (RSI), and divergences. This strategy
assesses each chart under the totality of the circumstances.
Meaning, different weight might be given to different
indications depending on how the chart presents as a whole.
When applying technical analysis, a trader’s primary goal
should be to act on a strong inclination that the
market will behave a certain way imminently .
Importantly, technical analysis does not guarantee an
outcome. Rather, it seeks to find and utilize identifiable and
repeating patterns occurring in market price action. In other
words, technical analysis merely suggests possibilities to a
trader from which they can draw a theory. While no
technical indicator is certain, undeniably, in many instances,
market behavior repeats itself similarly. These repeating
behaviors form the foundation of technical analysis. So,
studying previous market behaviors offers insights into
common occurrences and potential future market behaviors.
Through technical analysis, traders are able to position
themselves with a greater understanding of how price
action works and how the markets flow. Finally, technical
analysis should be construed in light of all other factors,
including fundamental analysis, which seeks to find the
intrinsic or “fundamental” value of an asset by evaluating
the driving forces behind the asset outside of the
marketplace. Fundamental analysis is detailed further in
Chapter 12 of Part III.
 CHAPTER 4:
READING A CHART

Chart Anatomy
Chart reading is a beautiful thing. I’m not kidding. Not only
will charting help you understand any global market when
you see the swings and dips on the news, but it’s also a
direct insight into human emotion and the real-time
exchange of capital between market participants. A chart is
a historical record of capital flow and group psychology,
and, in each chart, you can see market moves that made or
broke lives. Charts show collective moments of extreme
greed, or fear, and offer a means of predicting future
movements of price action. Charts are a valuable tool, and
becoming a chartist is a skill that often becomes a passion.
What we are looking at when viewing a chart is the value of
an asset over time. A technical chart, regardless of whether
it’s for a crypto, stock, commodity, or any other asset, is
defined by its X and Y axes. Always on the X axis is a
measurement of time, while on the Y axis is a measurement
of value or price. Thus, we are examining value changing
over time.
Importantly, a chart is dynamic and must be read as it
evolves. A particular disposition of a chart may change as
time goes on. Traders should be willing to abandon
dispositions if the price action changes course. Charting
isn’t about proving a pre-existing theory or disposition
(although certainly many investors love to charge their bias
on an asset using charts). Rather, it’s about reading into
suggestions on what might come next from a neutral,
objective standpoint. You may have a bias and that’s okay
as a human being, but, as a trader, bias and subjectivity are
a danger that can directly interfere with judgment and a
successful trade strategy.
When choosing a chart for a particular asset, I always pick
one representing data from a major exchange, which
preferably has years of chart history for an asset. For
example, if looking at Bitcoin I always use the chart from
either Coinbase, Bitmex (XBT), or Binance because the price
history is substantial, the liquidity of those exchanges is
high, and the price action is not as frequently subject to
outlier fluctuations that may occur in an illiquid market.
Charting becomes very difficult if you have to account for a
“flash crash” (a sudden drop or spike in price that’s outside
the norm of regular price movement). However, Bitmex’s
XBT still regularly suffers from extreme slippage and should
be treated with caution.
The anatomy of a chart consists of numerous variables.
Figure 4.1 below will familiarize you with the basic structure
of a technical chart on Tradingview, which is the industry
standard for technical charting. To access a technical chart,
log onto Tradingview.com and search for Bitcoin or another
crypto on any major exchange using the search bar. Upon
making your selection, you will see a non-technical blue line
chart and on the bottom left is a button saying, “Technical
Chart.” Select that button to access the technical chart and
tools necessary to trade.
Please note the attribution below all chart-based images in
this handbook stating “(tradingview chart).” This means the
charts were created using Tradingview.com. However, the
analysis and content modifications are my own, which were
created using Tradingview’s tools.
Figure 4.1 The anatomy of a chart. (tradingview chart)
1) The X axis with time.
2) The Y axis with price.
3) The name of the asset, its pair, and the exchange.
4) The time frame (in this case 1D), to the left of the
time frame is the ticker symbol (ETHUSD), and, to the
right, the “f” symbol is the indicators and strategies
tool.
5) The trade volume consisting of green and red bars.
6) The location of additional tools/indicators below the
primary chart. The RSI is highlighted here.
7) The location for noting indicators at play on the
primary chart display such as volume or moving
averages.
Logarithmic vs. Linear
When examining a chart, a trader can choose between a
logarithmic or linear scale. Because of the extreme volatility
of cryptocurrencies, many, if not most traders, prefer to use
the log scale. Simply put, the log scale best balances
extreme price action relative to the entire historical record
and is particularly useful when measuring large or
exponential growth. In crypto, with many assets
appreciating 1,000-20,000%, sometimes thousands of
percentage points in mere days, using the log scale helps
balance and fit the extreme volatility. Log charts scale an
axis based on a base number rising by powers (logarithms),
while the linear scale always gives equal weight to units on
an axis and can over emphasize or awkwardly scale recent
market moves. To make sure your chart is on the log scale
check the bottom right corner of the chart and select log
(see Figure 4.2 below).

Figure 4.2 (tradingview excerpt)

Volume

Figure 4.3 An image of trade volume bars cut from a chart.

(tradingview excerpt)
When a trader says the word “volume” what they are talking
about is the aggregate number of asset units exchanged
between buyers and sellers over a period of time. For
example, the amount of Bitcoin bought and sold. In crypto,
traders frequently speak of volume in terms of dollars. When
someone says, “Bitcoin had a forty-billion-dollar volume
today” that means forty billion dollars’ worth of Bitcoin was
bought and sold that day. [2] On a chart, volume is
represented over time in red or green bars. If a bar is green,
it means that buyers dominated the exchange of the asset
during that period. Meaning, more buyers were purchasing
from sellers’ offers than sellers were selling into buyers’
bids. Conversely, if the bar is red, it means sellers
dominated the exchange during that period by selling into
buyers’ bids more than buyers were purchasing their offers.
When buyers are in control, the price rises. When sellers are
in control, the price falls.
“Low volume” means not a lot of the asset was exchanged
at that price range, and the amount of selling or buying it
takes to eat through offers or sink bids is small. “High
volume” means a lot of an asset was exchanged at that
price. A trader may say something like “that was a low
volume dump,” which means the sellers had control and
dropped (“dumped”) the price but it wasn’t supported by a
large exchange of crypto.
Traders often examine volume when determining the
strength of a move. Generally, if a significant move up or
down comes with high volume, it suggests more power
behind the move and vice versa. For instance, a low volume
breakout might be viewed skeptically by traders because
they may think it’s unsustainable and insufficiently
supported by buyers.
Volume is also a helpful indicator when looking for tops or
bottoms of trends. Often, a top or bottom is accompanied by
a large amount of volume exchanged. So, when a trader is
trying to determine whether a trend is about to reverse,
volume can certainly be a helpful indication. As shown in
Figure 4.4 below, large volume sticks repeatedly accompany
a major shift in trend.
Moreover, declining volume can indicate that a move (up or
down) may be weakening and will not continue. For
instance, if sellers dump to a new low and buyers recover
the price a bit, but the buy volume is trending down. This
may indicate diminishing interest from buyers and their
continued ability to push the price further.

Figure 4.4 BTC/USD, 1D, Coinbase (tradingview chart)

Notice how each major high and low point from 2018 into
2020 was accompanied by significant volume.
Time Frames

Figure 4.5 An example of time interval selection.

(tradingview excerpt)
When examining a chart, a trader must input the time frame
(interval) they wish to see the price portrayed. Technical
traders frequently use candlestick charts where price action
is shown in a string of red and green candles over a period
of time. With each candle representing one unit of the
selected time frame. The next section below goes over
candlesticks in detail. For the purpose of this section, a
trader merely needs to understand that when viewing a
chart, you are always going to be examining price under a
specific time frame.
Some traders only trade higher frame charts represented by
four-hour (4H), one-day (1D), or even one-week (1W)
candles. Under those settings, price action is delineated in
candles that each represent four hours, one day, or one
week of trading, respectively. Other traders may look at low
time frame candles. For example, a day trader may look at
two-hour (2H) one-hour (1H), or 30-minute (30M) candles. A
really low time frame scalper may look at a chart minute by
minute with 1-minute (1M), 5-minute (5M), 15-minute (15M),
and 30-minute (30M) candles. Most importantly, when a
trader says they are observing the “daily chart” or “four-
hour chart,” what they are really saying is they are
observing price action with candles delineated in these
increments.
What time frame is best depends on what type of trader you
are. For my trading strategy, I focus generally on higher
frames like 4H and 1D. However, I like to break things into
smaller or larger frames for different purposes. As a new
trader, I suggest only working trade setups on the 4H and
1D time frames because, as I think you will see, the clearest
and most reliable trade signals appear on these larger
frames. If you trade on smaller time frames, the signals can
become invalided easily and the chart disposition changes
more frequently. However, no harm will come from messing
with all the different time frames and becoming fluent in all
of them. If you apply my performance analysis of chart
patterns described later on, you should only apply it to
patterns measured on the 1D chart.
Importantly, the crypto markets are 24/7 and unless you are
trading futures or on a minority exchange that has time
gaps, the chart behavior and candlestick analysis defined in
the following sections below may vary from traditional
methods and readings on trading stocks or other assets.
Figure 4.7 below shows a chart with gaps versus a chart
without gaps. For the purpose of this handbook, we will stick
to the perpetual markets without gaps because most
exchanges/cryptos are displayed this way.

PERPETUAL MARKET (CONTINUOUS WITHOUT GAPS)

 FUTURES MARKET (GAPS)

Figure 4.7 (tradingview charts)

An example of a perpetual market chart without gaps next
to a futures market chart with gaps.
 CHAPTER 5:
JAPANESE CANDLESTICKS (CRYPTO-
FRIENDLY INTERPRETATION)

Figure 5.1 Candlesticks (tradingview excerpt)

Japanese candlestick trading originated in Japan during the
18 th century with commodity traders speculating on the
price of rice. The technique’s popularity materialized in the
West in 1991 when Steve Nison published his book Japanese
Candlestick Charting Techniques . [xii] Candlestick analysis is
a predictive tool used to determine price trends and shifts in
trends. Candlesticks show price action during a set period of
time and are comprised of “bodies” and “wicks.” In this
section, you will learn the basics of reading and
understanding candlestick chart analysis. Understand, the
candlestick analysis defined below may vary from traditional
securities or other teachings because of the perpetual
nature of most crypto markets. The formations and patterns
are defined from my crypto-centric trader’s interpretation.
This may offend some purists!
When reading candlesticks, it’s vital to understand how
price action forms them. Each candle is a blank canvas that
shows the change in value over the time frame examined.
For instance, a one-hour (1H) candle shows the price action
over one hour. The candle is completely formed at the end
of the hour and a new one begins on the new hour. The
beginning of the new candle starts with the first transaction
of the new period, and whether the candle is green (buyer
controlled) or red (seller controlled) is determined by the
price of the asset relative to where it began during that
period. For example, if Bitcoin is trading at $10,000 when
the candle begins (opens) and rises to $10,050 where it
ends (closes), the candle will be colored green. Whereas, if
Bitcoin closes below $10,000 in that period, it will be colored
red. The “body” is the solid colored part of a candle marking
the distance between the open and close of the examined
period. The greater the distance between open and close,
the larger the body.
If an asset gains value and then loses it during a candle’s
formation period, it creates what is called a wick. The wick is
a thin line representing the high or low where the price went
before it changed course. Thus, what you are actually
observing when a candle forms a wick is a change in who is
controlling the price of the asset – either the buyers gained
control but later lose control or the sellers gained control
but later lose it. Think of trading as a tug of war where
buyers and sellers are in constant competition trying to pull
the opposition onto their side. Importantly, many traders
may use the term “shadow” for wick, and some may only
apply the definition of “wick” to the upper part of a candle
and use the term “tail” for the bottom. This handbook only
uses the term wick and applies it for all purposes mentioned
above.
Figure 5.2 (tradingview excerpts)
Examples of two different types of candles: Example 1 with
a small body ending with buyers in control and Example 2
with a large body ending with sellers in control.
A trader may examine a chart on multiple time frames to
get a better picture of what’s going on. For example, a
trader might compare the candles on the 1H chart with the
4H chart to examine or break down the price action
meticulously. If a 4H chart shows a seller dominated red
candle, it may be useful for a trader to see at what point in
that four-hour period sellers took control.
Finally, candlestick analysis requires reading strings of
candles in conjunction. Understanding what individual
candles mean, as well as sets of candles (formations or
patterns), can help a trader determine the strength of a
trend or when a trend is about to reverse. A nice analogy
comes from flowers. An individual flower is identifiable and
beautiful in its own way but when grouped together in a
cluster or bouquet its beauty and significance are
magnified. Flowers can be arranged infinitely together to
create different expressions or evoke different emotions –
red roses for love, yellow daffodils or sunflowers for
happiness, tulips for well-wishes, or a mix of many flowers
simply for beauty. Similarly, a candlestick may be
appreciated for its suggestion alone, but, when combined
with other candlesticks its mere singular suggestion may
strengthen in comradery or change completely to evoke a
whole new meaning. The following sections identify
common candlestick forms and patterns and their potential
disposition on the future price movement of an asset.
I caution that candlesticks are a tool that should be read in
light of all other aspects of technical analysis. For example,
consideration of surrounding candles, trade volume, trend
lines, chart patterns, oscillators and momentum gauges like
the RSI, or other market signals. Many forms appear during
reversals, consolidation periods, and as continuations, so it’s
vital to understand other aspects of technical analysis. I
rarely make a trade based solely on a candlestick formation
without some other complementary indicator.
Bullish Candles and Formations
Before looking at particular bullish candles and formations,
it’s important to note the color of a candle (red or green)
does not necessarily implicate whether the candle is bullish
or bearish. A bullish candle can indeed be red if it appears
at the end of a downtrend. However, in instances where a
candle may be bullish regardless of color, some traders may
treat green candles with a greater bullish bias because the
candle closed above the open. What’s most important is
understanding how the candle is formed, which can assist
you in understanding why it has a bullish or bearish
disposition. I note when a candle must be green, for
instance, with bullish engulfing candles.
Bullish Spinning Top

Figure 5.3 (tradingview charts)

The spinning top is a candle with both a substantial upper
and lower wick as well as a short body. The body doesn’t
have to be perfectly centered; however, if it’s situated on
the top or bottom it may be another candle like a hammer
or shooting star. Also, if the body looks more like the cross
of a “t,” then the candle is likely a doji, which is a relative of
the spinning top. Spinning tops appear frequently and show
indecision in the market and a period where buyers and
sellers each held a dominating position before losing it.
Spinning tops appear commonly in times of consolidation,
continuation, and reversal. While they are not innately
bullish or bearish leaning, a spinning top that occurs after a
significant downtrend can mark a shift in the power struggle
and indicate a bullish reversal. The color of the candle is
determined by who controlled the price action at close of
the time period and is not necessarily relevant to
determining a bullish disposition. In other words, a red
spinning top can be a bullish indicator at the end of a
downtrend.
Figure 5.5 (tradingview charts)
The bullish hammer is defined by its long bottom wick and
short, wickless or nearly wickless, body at the top, which
creates a hammer-like shape. A hammer is formed in a
period where sellers take control of an asset dropping its
price, but before the defined period of time is over, the
buyers take back control and push the price back just above
or below the open (creating a green or red candle,
respectively). The hammer is a useful tool because it shows
the sellers’ inability to drive the price of an asset further
down and sustain it. A hammer indicates seller exhaustion
and commonly signals reversal when it occurs during a
downtrend.
Inverted Hammer

Figure 5.6 (tradingview charts)

The inverted hammer is exactly as it sounds – an upside-
down hammer. It’s defined by its long top wick and lower
short body (head), which occurs when the open and close
price are very similar but only after the price makes a
significant move up before retreating back down near where
it started. While this might not sound bullish intuitively
because the bears pushed the price down after a rise; the
inverted hammer shows the bulls challenging the downtrend
and an attempt at reversal. The inverted hammer can be
useful as a buy signal and as a signal to the bears hinting
they may be losing steam.

Bullish Engulfing Candle

Figure 5.7 (tradingview charts)
A bullish engulfing candle occurs when the body of a larger,
buyer dominated, green candle follows a smaller-bodied,
seller dominated, red candle. Thus, the body of the green
candle completely “engulfs” the preceding red candle
without consideration to the wicks. This formation requires
the green candle open at the closing price of the red candle
and close above the open price of the red candle.
NOTE: Traditionally, a stock trader may say the open of the
green candle must be lower than the close of the red candle
and gap down; however, as mentioned previously, our
markets are 24/7 and do not gap like a stock market does
between trading hours. So, look for a candle opening at the
same level and engulfing the previous candle.

Bullish Harami
Figure 5.8 (tradingview charts)
The bullish harami is defined by a larger exterior red candle
and a smaller succeeding green candle with its body
contained inside the body of the red candle. The word
harami comes from a Japanese word for “pregnant,” and the
candle formation takes its name from the resemblance of
the red candle harboring the green candle in its belly. Bullish
haramis display a pause in volatility and can indicate that
trend reversal is imminent in a downtrend; however, bullish
haramis that fail can result in a sharp decline. Thus, many
traders wait for confirmation with an additional candle (the
three inside up confirmation pattern).
NOTE: Traditionally, traders often require the belly candle of
the harami to gap up inside the mother candle’s body and
some may give more weight to a harami when the belly
candle’s wicks are completely inside the mother candle’s
body. However, unless you are trading futures or an
exchange that has time frame gaps, as noted in the
previous section on time frames, you will not see such a
strict definition of a harami in crypto.

Bullish Harami Cross

Figure 5.9 (tradingview charts)
The harami cross is the same thing as a harami except the
inside belly candle is either a doji or very thin spinning top,
which looks like a cross. Again, since you likely will not be
trading gaps in crypto, this example is as close as it gets in
a perpetual market. The harami cross signals the same
potential bullish reversal. Some traders may give greater
weight to a harami cross over a normal harami as a reversal
signal.
Three Inside Up (Harami Confirmation)

Figure 5.10 (tradingview charts)

The three inside up pattern is a bullish confirmation pattern
following the harami or harami cross. One additional green
candle establishes buyer control and confirms the preceding
green belly candle. The three inside up is a common entry
signal for a trader playing a harami.
Morning Star

Figure 5.11 (tradingview charts)

The morning star is bullish reversal formation defined by a
large red candle, a smaller red candle (often a doji or
spinning top) situated below the first candle, and finishing
with a large tall-bodied green candle. The green candle does
not need to be larger than the first red candle; however, it
should be a majority of the size. Also, if a small middle
candle is situated inside the body of the first candle, then it
is likely a harami and harami confirmation – not a morning
star.
NOTE: Traditionally, traders often require that the morning
star and its bearish counterpart, the evening star, have
gaps between the middle candle and the two candles it’s
situated between. Thus, the middle candle in other markets
may be red or green. Of course, we don’t see this in the
perpetual markets. So, look for a middle red candle opening
downward from the first candle’s close and the final green
candle opening upward directly from the middle candle’s
close.
Tweezer Bottom

Figure 5.12 (tradingview chart)

The tweezer bottom is formed when, in a downtrend, two
consecutive candles close with identical or nearly identical
lows. Whether the candles are body or wick dominant
doesn’t matter as long as they share matching lows. Thus, it
could be formed by two tall-bodied candles (see Figure 5.12)
or by candle combinations with wicks. Tweezer bottoms
show two successive periods where sellers failed to push the
price further down, ending with buyers firmly in control.
However, tweezer bottoms may be difficult to identify
because candle sequences often end flat during periods of
consolidation. Therefore, traders should carefully watch the
next candle(s) for confirmation and to establish whether the
pattern marks a break in trend.

Three White Soldiers

Figure 5.13 (tradingview charts)
The three white soldiers formation is defined by three
consecutive well-bodied green candles stacking on top of
each other, which appear in a downtrend or dip. Generally
speaking, the candles will not have large wicks and have
relatively tall bodies (no spinning tops or dojis). This
formation shows consistent and strengthening buy pressure
and often indicates a bullish reversal or increasing velocity
of an existing bullish trend.
Three-Line Strike

Figure 5.14 (tradingview charts)

A bullish three-line strike is formed during an uptrend when
a single red candle eliminates the value of the previous
three green candles before continuing the trend. While
intuitively a single red candle engulfing three green candles
may appear bearish, the concept is that such a quick move
evaporates sell power and offers buyers a discount
opportunity before the trend continues up. Still, I am
hesitant to trade the three-line strike as a bullish
continuation. Trading stock markets, Bulkowski notes a
reversal rate is as high as 65%. [xiii] Whether a bullish three-
line strike is a continuation, or bearish reversal, is up for
debate. So, keep in mind this formation can play out either
way. Exemplified below in Figure 5.15 is a three-line strike
acting as a reversal.

Figure 5.15 (tradingview chart)

An example of a three-line strike reversal.
Bearish Candles and Formations
The following are bearish candles and formations, which
frequently suggest a bearish reversal. Similar to some
bullish candles, the color of the candle is not necessarily
relevant to the bearish disposition. For instance, a green
candle may offer a bearish outlook. However, some traders
may treat red candles with a greater bearish bias because
the candle closed below the open. Where relevant, I note
where the color of the candle must be red.
Bearish Spinning Top

Figure 5.16 (tradingview charts)

The spinning top is a candle with both a substantial upper
and lower wick as well as a short body. The body doesn’t
have to be perfectly centered; however, if it’s situated on
the top or bottom it may be another candle like a hammer
or shooting star. Also, if the body looks more like the cross
of a “t,” then the candle is likely a doji, which is a relative of
the spinning top. Spinning tops appear frequently and show
indecision in the market and a period where buyers and
sellers each held a dominating position before losing it.
Spinning tops appear commonly in times of consolidation,
continuation, and reversal. While they are not innately
bullish or bearish leaning, a spinning top that occurs after a
significant uptrend can mark a shift in the power struggle
and indicate a bearish reversal. Remember, the color of the
candle is determined by who controlled the price action at
close of the time period and is not necessarily relevant to
determining a bearish disposition. In other words, a green
spinning top can be a bearish indicator at the end of an
uptrend.
 Shooting Star

Figure 5.17 (tradingview charts)

As you may notice, the shooting star is the bearish
counterpart to the bullish hammer but it shares the same
form as an inverted hammer (upside-down hammer). Like
an inverted hammer, the candle has a long upper wick and
a lowly placed body with little or no bottom wick. The candle
shows buyers gaining the upper hand at some point before
losing it, and the range between open and close is narrow.
The difference between an inverted hammer and shooting
star is where they occur. A bullish inverted hammer
frequently occurs in a downtrend and indicates a weakening
of selling power, while a bearish shooting star frequently
occurs in an uptrend and indicates buyer exhaustion and a
bearish reversal.

Hanging Man
Figure 5.18 (tradingview charts)
The hanging man is the bearish counterpart to the inverted
hammer but it shares the same form as a bullish hammer.
It’s defined by its long lower wick, small upper body (head),
and little or no top wick. The hanging man shows buyers
losing control before gaining all or nearly all of it back. While
this might not sound bearish intuitively because the bulls
quickly recovered the period price after a drop; the hanging
man shows the bears challenging the uptrend and an
attempt at reversal. When appearing after a substantial
uptrend, a hanging man may be a sell signal or simply a
cautionary signal to the bulls hinting they may be losing
steam.

Bearish Engulfing Candle

Figure 5.19 (tradingview charts)
A bearish engulfing candle is the opposite of a bullish
engulfing candle. It occurs when the body of a larger, seller
dominated, red candle follows a smaller-bodied, buyer
dominated, green candle. Thus, the body of the red candle
completely “engulfs” the preceding green candle without
consideration to the wicks. This formation requires the red
candle close below the previous green candle’s open so the
previous green candle is completely engulfed. It displays
sellers recapturing control by completely overtaking and
invalidating the previous period move.
NOTE: Traditionally, a stock trader may say the open of the
red candle must be higher than the close of the green
candle and gap up; however, as mentioned previously, our
markets are 24/7 and do not gap like a stock market
between trading hours. So, look for a candle opening at the
same level and engulfing the previous candle.

Evening Star
Figure 5.20 (tradingview chart)
The evening star is the bearish version of the morning star.
The formation consists of a large green candle, a small
green candle above the first green candle (often a doji or
spinning top), and then a large red candle comprising a
majority of the first large green candle. Evening stars show
a substantial push by the bulls followed by an inability to
move the market higher and completes with a large bearish
candle indicating sellers have firmly taken control. If the
small middle candle is situated inside the body of the first
candle, then it is likely a bearish harami and harami
confirmation – not an evening star.
NOTE: Traditionally, traders often require that the evening
star and its bullish counterpart, the morning star, have gaps
between the middle candle and the two candles it’s situated
between. Thus, the middle candle in other markets may be
red or green. Of course, we don’t see this in the perpetual
markets. So, look for a middle green candle opening upward
from the first candle’s close and the final red candle opening
downward directly from the middle candle’s close.
Bearish Harami
Figure 5.21 (tradingview charts)
The bearish harami is defined by a larger exterior green
candle with a smaller succeeding red candle inside. This is
the bearish upside-down version of the “pregnant woman”
candle formation. The belly candle is formed on top rather
than the bottom. Bearish haramis display a pause in
volatility and can indicate that trend reversal is imminent in
an uptrend; however, bearish haramis that fail can result in
a sharp rise. Thus, many traders wait for confirmation with
an additional candle (the three inside down confirmation
pattern).
NOTE: Traditionally, traders often require the belly candle of
the harami to gap down inside the mother candle’s body
and some may give more weight to a harami when the belly
candle’s wicks are completely inside the mother candle’s
body. However, unless you are trading futures or an
exchange that has time frame gaps, as noted in the
previous section on time frames, you will not see such a
strict definition of a bearish harami in crypto.

Bearish Harami Cross

Figure 5.22 (tradingview charts)
Similar to the bullish equivalent, a doji, or thin spinning top,
inside a previous large green candlestick creates a bearish
harami cross. If the small candle is situated above the larger
green candle, it may be an evening star. Some traders may
give greater weight to a bearish harami cross over a normal
bearish harami as a reversal signal. As with all haramis,
traders should watch for a further confirmation candle.
Three Inside Down (Bearish Harami Confirmation)

Figure 5.23 (tradingview charts)

The three inside down pattern is a bearish confirmation
pattern following the bearish harami. One additional red
candle establishes seller control and confirms the preceding
red candle (the inverted belly). This is a common short or
sell signal for traders playing the harami.
 Tweezer Top

Figure 5.24 (tradingview charts)

The tweezer top is formed when, in an uptrend, two
consecutive candles close with identical or nearly identical
highs creating a tweezer-like shape. Whether the candles
are body or wick dominant doesn’t matter as long as they
share matching highs. Thus, it could be formed by two tall-
bodied candles or by candle combinations with wicks.
Tweezer tops show two successive periods where buyers
failed to push the price further, ending with sellers firmly in
control. However, tweezer tops may be difficult to identify
because candle sequences often end flat during periods of
consolidation. Hence, traders should carefully watch the
next candle(s) for confirmation and to establish whether the
pattern marks a trend break.

Three Black Crows

Figure 5.25 (tradingview charts)
The three black crows formation is the bearish version of the
three white soldiers and is defined by three consecutive
well-bodied red candles. Generally speaking, the candles
will not have large wicks and have relatively tall bodies (no
spinning tops or dojis). This formation shows consistent and
strengthening sell pressure and often indicates a bearish
reversal or increasing velocity of an existing bearish trend.
Bearish Three-Line Strike

Figure 5.26 (tradingview charts)

A bearish three-line strike is formed when a single green
candle recovers the value of the previous three red candles.
While intuitively this may appear bullish, the concept is that
such a quick move evaporates buy power and offers an
opportunity for sellers to unload quickly at a higher point
before the trend continues down. Similar to the bullish
three-line strike, whether a bearish three-line strike is a
bearish continuation or bullish reversal is up for debate. So,
keep in mind this pattern can play out either way.
Dojis

Figure 5.27 (tradingview excerpts)

Highlighted in this illustration are the common types of
dojis.
The doji is a trader favorite for chart interpretation,
particularly when marking potential trend reversals. Doji’s
signal indecision in the market and can be bullish, bearish,
or neutral. Doji’s always represent a power struggle where
one side had control but lost it. In the case of a long-legged
or neutral doji, both sides had control at one point before
losing it and ending in a stalemate.
A doji is similar to the spinning top or hammer form candles.
Notably, the difference between them is the height of the
body. If a body is fuller than what would fit as the cross of a
“t,” then it’s a different candle, such as a spinning top,
hammer, or shooting star. Importantly, even if you can’t
quite tell whether a candle is a doji, spinning top, hammer,
or shooting star - long wicks in general are indicative of the
opposing side’s inability to further move the asset price and
are often an opportunity for a trader to see weakness in a
trend. In other words, recognizing the bigger picture of what
the wick means can help you make a determination even if
you are not correctly identifying the candle.
Dragonfly Doji

Figure 5.28 (tradingview chart)

The dragonfly doji is a bull’s best friend. Distinguished by its
long bottom wick and cross shape, it displays an attempt by
sellers to push the price of an asset down significantly
before bulls recover a vast majority or all of value in that
period. The close of the candle is extremely close to the
open. When appearing after a sustained downtrend, a
dragonfly doji can signal a bottom. In these cases, it often
shows the last gasp of sell pressure before tides turn. The
candle itself can be either red or green without changing its
bullish disposition. If a candle’s body is greater than what
fits comfortably as the cross of a “t,” it may be a spinning
top, bullish hammer, or hanging man depending on its
appearance or location. Importantly, despite its bullish bias,
a dragonfly doji can appear the top of an uptrend and
signify a reversal – similar to a hanging man.
Gravestone Doji

Figure 5.29 (tradingview chart)

The gravestone doji is the opposite of a dragonfly doji. As
such, it’s a bear’s best friend. Inverse to a dragonfly doji, a
gravestone doji is marked by its long top wick and skinny
body that forms with a close nearly at the candle’s open.
The candle itself can be either red or green without
changing its bearish disposition. This doji is formed when
buyers push the price of an asset up significantly before
giving it all back. When occurring after a sustained bull
trend, it can signal the final bullish gasp and indicate the
top. If a candle looks like a gravestone doji, but the body is
greater than what fits comfortably as the cross of a “t,” it
could be a spinning top, inverted hammer, or shooting star
depending on the body’s placement and where the candle
appears. Importantly, despite its bearish bias, a gravestone
doji can appear at the bottom of an uptrend and signify a
reversal – similar to an inverted hammer.
Long-Legged/ Neutral Dojis
Figure 5.30 (tradingview chart)
The long-legged doji and the neutral doji are basically the
same thing except the neutral or “classic” doji has shorter
wicks. Both can signal a top, bottom, or consolidation. These
dojis are notably different from the other dojis by the
distinct small body situated in the middle (or middle-ish
area) of the candle rather than near the top or bottom.
Long-legged and neutral dojis show a tug of war that
resulted in a virtual draw. At one point, both the buyers and
sellers each had control but when the time period closed,
neither side had a clear advantage. Like other dojis, the
candle body is almost non-existent as the open and close
were nearly the same.
Despite not having an innate bearish or bullish bias, the
long-legged or neutral dojis can certainly be interpreted
with a bias. For example, if one appears after a sustained
trend in either direction it may signal the inability of the
prevailing force to push the price further in that direction
and mark a reversal. When appearing after a sustained
bullish trend, it may signal a top. Conversely, when
appearing after a sustained bearish trend, it may signal a
bottom. However, a long-legged or neutral doji may also
appear at times of consolidation because they show
indecision in the market and the inability of both buyers and
sellers to take the upper hand. Thus, when confronting
these dojis, a trader needs to pay special attention to the
surrounding circumstances.
 Candlestick Takeaways:
1. Candles are formed by price action over an examined
period of time and contain wicks and bodies.
2. Candlestick formations show the power struggle
between buyers and sellers and are frequently used
for timing reversals.
3. Bullish or bearish candlesticks are not always green
and red, respectively.
4. Similar looking candlesticks may signal different
things depending on their location and the current
trend.
5. Candlesticks should be read in light of other aspects
of technical analysis and the chart as a whole.
 CHAPTER 6:
TREND LINES

Learning Japanese candlesticks is only one small part of a

much greater equation. While individual candles and
candlestick formations can give predictive hints about what
is to come next, when read in conjunction with the greater
price action, the predictive ability strengthens. As
candlesticks string together, ebbing and flowing with the
price action, highs and lows are created. Traders can
analyze these highs and lows using trend lines and can
further predict future market movements when these trend
lines break or create recurring chart patterns. These next
sections focus on trend line formation, breakouts and
breakdowns, and trend channels.

Basic Trend Line Tool for Chart Construction

Trend Line Formation
As an asset’s price rises and falls it creates a continuous
series of highs and lows. A high being the highest price of
the asset before sellers take control and drive the price
down, and a low being the lowest price of the asset before
buyers take control and drive the price back up again. When
a new low or new high is created, a trader may analyze the
new high or low relative to the previous highs or lows. Often,
successive highs or lows follow a general trend of price
action and can be connected using a line to create what is
called a trend line. Trend lines connect the lows to the lows
and the highs to the highs. They follow the overall
movement of the market – either an uptrend, downtrend, or
consolidation. An uptrend is formed in periods of higher
highs and higher lows, while a downtrend is formed in
periods of lower highs and lower lows. A period of
consolidation may be defined by a largely horizontal period
with a narrow range of highs and lows.
Generally, at least three successive highs or lows (touches
on the same line) create a trend line. As a rule of thumb, the
more touches on a particular trend line the more significant
it will be if it’s breached. However, in some instances, you
can draw a potential trend line from two highs or lows and
see how it fills in understanding it may not be very accurate.
I find two-touch lines occasionally useful when connecting
consecutive highs or lows on very large time frames like 1D
or 1W to see greater trend direction and predict future
macro highs or lows.
Whether to draw the trend line by attaching the points of
the candle wicks or the bodies is a matter of preference.
Some traders have a hard preference and only stick to wicks
or bodies, while other traders create trend lines using both -
maximizing connections that can be made to a particular
line. I prefer to give wicks first preference because they
pinpoint the exact price points. Yet, bodies often make more
connections and average the trend range nicely. Ultimately,
a trend line is merely delineating the upper or lower limit of
trending price action, and I see no problem doing it either
way. Moreover, sometimes a trend line may have a slight
deviation and recovery before continuing to maintain the
trend. Thus, an unremarkable deviation. However, a
significant and sustained breach of a trend line should be
obvious regardless of whether it was drawn using wicks,
bodies, or both.
Figure 6.2 (tradingview charts)
An example of drawing the same trend line using wicks for
one instance and bodies for the other. Notice how a
relatively small rise would break beyond both trend line
examples regardless of how they were drawn.
Support and Resistance Lines
A trend line connecting a series of lows (higher lows or lower
lows) creates what is called a support line (see Figure 6.3).
Conversely, a trend line connecting a series of highs (higher
highs or lower highs) creates what is called a resistance line
(see Figure 6.3). The resistance line delineates the upper
trend of price action and establishes where the buyers are
repeatedly unable to push the price above. Similarly, the
support line delineates the lower trend of price action and
establishes where the sellers are repeatedly unable to push
the price below.

Figure 6.3 Support and Resistance Lines (tradingview

charts)
 Breakouts and Breakdowns
A breakout occurs when buyers push the price of an asset
above the resistance line. This shows the buyers thrusting
the price beyond the general trend of price action, which
suggests a shift in trend or a volatile move. For instance, in
a downtrend with three or more consecutive highs, each
lower than the last, buyers force a breakout disrupting the
trend of lower highs. This suggests the downtrend may be
broken and a positive reversal is imminent. In an uptrend or
consolidation period, if a resistance line is breached it may
signal a new accelerating move upward.

Figure 6.4 (tradingview chart)

Highlighted above is a resistance line and breakout. Notice
the unremarkable single deviation right before touch three
of the resistance line. The X marks the breakout.
A breakdown occurs when sellers push the price of an asset
below the support line. This shows sellers pushing the price
below the general trend of price action and also suggests a
shift in trend. For example, in an uptrend with three or more
consecutive higher lows, the sellers push the price below
the third higher low, which breaks below the support line.
This suggests the uptrend supported by higher lows is
broken and a reversal may be occurring. Additionally, in a
downtrend or consolidation period, if a support line is
breached it may mark a new accelerating downward move
of the asset. Importantly, I use the term breakdown in this
handbook because it’s easy to differentiate support and
resistance breaks. Breakouts always being upward moves
and breakdowns being downward. Many traders will use the
term breakout interchangeably for both cases. That is not
the case for this handbook.

Figure 6.5 (tradingview chart)

Notice the support line is drawn using the most consecutive
connecting wicks possible, and thus the first arrow marks an
outlier. Also note, the second arrow marks a near touch but
not quite. X marks the breakdown.
Breakouts and breakdowns are often an opportunity for a
trader and indicate an entry or exit. In the case of a
breakout, a trader may buy or long an asset hoping to get
an entry at the first indication of positive trend reversal or
bullish continuation. Conversely, upon breakdown, a trader
may sell a position to preserve profit or enter a short and
profit from the first indication of negative trend reversal or a
continuation downward. Frequently upon initial breakout or
breakdown, assets revisit (“retest”) the point of the
breakout, which some traders use as an entry point. This is
particularly true with chart pattern breaks, which are
discussed thoroughly in subsequent sections.
Finally, a broken resistance line can turn into a support line
and vice versa. Sometimes when an asset breaks a
resistance or support line, and the price returns to the trend
line, what once was resistance may then act as support. A
trader may say something like “resistance has flipped to
support” or “support has flipped to resistance.” This trend
line switch may be observed shortly after the initial
breakout or days, weeks, or even months later. If a trend
line was respected for many weeks or months before
breaking, traders may place greater significance on the line
if price action reverses course and approaches or retests it.

Figure 6.6 (tradingview chart)

See this resistance line (bodies) now acting as support after
a breakout and retest.
Fakeouts
A fakeout refers to a false breakout or breakdown where the
resistance or support line is briefly breached before the
asset reverses back below or above the trend line. Fakeouts
are the misery of the breakout trader. In some instances,
fakeouts result in a strong rejection and can lead to a
powerful move in the opposite direction. For example, if a
breakout occurs and rejects the higher high, short sellers
may pile in and quickly drive the asset’s price down. Or, in
the opposite situation, if a breakdown occurs and fails
quickly bouncing back above the support line, buyers may
jump in and quickly drive the price higher. Fakeouts can
develop quickly and be comprised of a single candle or they
may develop over a short period of time following a trend
break and encompass a group of succeeding candles.
Generally, fakeouts indicate weakening power on the side
that failed to sustain the price beyond the trend line. You
may hear traders say the term “bear trap” or “bull trap,”
which means an instance where over eager bears or bulls
are fooled into taking a bad position. This saying is
frequently applied to fakeouts.

Figure 6.7 VET/BTC, 1D, 2020, Binance (tradingview chart)

In this example, notice how the resistance line was broken
before a quick rejection and return back below the line.
Ultimately, however, this falling wedge pattern broke out
massively.
Trend Channels
A trend channel is formed when an asset’s price ranges
between parallel support and resistance lines for a
substantial period of time. Generally, there should be at
least three touches for each line. Since trend lines run
parallel to each other, the channel either moves in an
upward direction with higher highs on the resistance line
and higher lows on the support line or downward with lower
highs on the resistance line and lower lows on the support
line. Trend channels are traded upon an asset breaking out
or below the resistance or support line. The breakout or
breakdown suggests the asset is ready to leave the narrow
range of the channel and continue a move in the direction of
the break.
See the example below, charting the entire altcoin market
capitalization (excluding Bitcoin), which I use as an index for
the health of the altcoin market (Ticker: TOTAL2). If a trader
used the trend channel breaks as buy signals and went into
any major altcoin, both occasions would have netted a
healthy profit since the altcoin market capitalization rose
180% and 95% respectively. Notably, larger altcoins harbor
a significant portion of the market share.

Figure 6.8 (tradingview chart)

Total Altcoin Market Capitalization Excluding BTC (Ticker:
TOTAL2)
Trend Line Takeaways:
1. Trend lines are created by connecting highs to highs
(resistance) and lows to lows (support).
2. Generally, the more touches on a line, the bigger the
implication of a break.
3. A breakout occurs when the resistance line is broken,
while a breakdown occurs when the support line is
broken.
4. A fakeout refers to a failed breakout or breakdown.
5. Trend channels are formed by two parallel, non-
converging trend lines.
 CHAPTER 7:
CHART PATTERNS

Trend support and resistance lines are also the basis of chart
pattern formation. By applying the basics of trend lines and
combining both support and resistance lines, traders
identify patterns that can be used as predictive tools.
Interestingly, numerous repeatedly identifiable patterns
occur in all markets, which allow traders to predict future
movements of price action with reasonable success. Over
the years, traders have applied the statistical significance of
price action following frequently occurring chart patterns
and their relevance to which way a market moves. [xiv]
Today, Chart Logic offers the first comprehensive analysis of
chart patterns in the cryptocurrency markets. This chapter
first describes when to enter and exit a breakout trade
before showing individual examples of some of the most
commonly known chart patterns, their application in crypto
markets, and detailed statistics and findings on each
pattern’s performance.
When to Enter a Breakout Trade
When targeting any breakout, a trader should ensure the
trend is actually broken. Traders are cautioned not to long at
or just below a resistance line or short at or just above a
support line. While it may be temping because a breakout or
breakdown is so close you can taste it, trend lines tend to
support the direction of price action they define and should
be presumed to be maintained until broken. In fact, many
traders like to place bids at support lines and sells or shorts
at resistance lines.
Whether to buy upon trend line break or candle completion
is another question. Many traders believe you should only
buy a breakout that confirms with at least one completed
candle (after the candle closes beyond the broken trend
line). However, other traders will buy a breakout upon the
trend breaking because, on some occasions, a breakout
occurs so violently and quickly that a trader would be left in
the dust if they waited for candle completion. Other traders
will wait for a retrace or retest following a breakout that
goes back to the original trend line. This is a preference
subject to personal taste.
Each of these strategies comes with a downside. Arguably,
breakout traders that do not wait for any confirmation are
playing the riskiest game, particularly those traders who are
using leverage to trade, because many breakouts fail.
However, that risk may be worth taking if an extremely
violent breakout is reasonably anticipated. Retest traders
rely on the fact that often breakouts retest the trend line;
however, on many occasions breakouts never retest the
trend line and leave these traders to buy in higher or not at
all. Logically, I’ve never been attracted to retest trading
because of the risk of missing a move and the fact that
retest traders still buy at the trend line near breakout and
must set a stop-loss below anyways, which accomplishes
little more than what a breakout trader does with a fine-
tuned stop-limit order. However, if you miss an initial
breakout, I see a retest as an opportunity for a second
chance entry. Finally, traders who wait for one or more
candle to complete may miss out on some explosive trades
or get a higher entry, but they do not assume the high risk
of common fakeouts and they still may reap the benefit of a
retest if it occurs. Thus, for general purposes, as a new
trader I suggest taking the road of a confirmation trader.
When to Exit a Failed Breakout Trade
Determining a proper exit can be a challenge. However, if
you are not over leveraged, allowing some latitude gives a
trader a comfortable edge on volatility. Numerous popular
chart pattern examples offered online show the buy signal
for a breakout as above the resistance line and a stop-loss
signal just below the support line of the same pattern (for
short setups – vice versa). In many instances, this can be an
acceptable strategy. The logic is that if the price reverses to
the point where the pattern breaks down, it’s no longer
valid. This strategy is particularly effective when the pattern
is one where support and resistance lines converge creating
a narrow price range at the time of breakout or breakdown.
For instance, with many pennants, triangles, and flags.
However, in some cases like broadening wedges, the price
difference between the support and resistance lines may be
too significant to place a reasonable stop-loss beyond the
opposing trend line.
Other factors may also play into where you decide to exit,
like position sizing and acceptable losses. Before you enter
a trade, you should pre-determine how much money you are
willing to lose and make a hard rule on when to cut your
losses. When I am stopped out of a trade, I do not seek to
re-enter that day because doing so is an easy way to
succumb to gamblers’ mentality. Please carefully read the
sections on adopting hard rules and gamblers’ mentality in
Part III of this handbook.
Ultimately, the decision of what is an acceptable loss and
placement for your stop-loss is a judgment call. A trader will
learn quickly that it’s one thing to say how they would trade
a chart from the sidelines, but when they are actually in the
trade with their capital on the line, it may feel completely
different. This is precisely why all trades should have a
predetermined entry and exit (stop-loss) and trade
strategies should be executed from an objective and robotic
standpoint. There will always be another trade.
Figure 7.1 BTC/XBT, 2H, 2020, Bitmex (tradingview chart)
Check out this classic example of an entry and potential exit
based on a confirmed breakout of a pennant pattern (2H).
The breakout is confirmed above the resistance line. The
stop-loss is set below the support line.
Taking Profit
Every trade should come with some idea of when ideally you
will be taking profit – either abstractly or definitively. Many
traders mark profit points before they even enter the trade.
These may be based on considerations like resistance lines;
price levels; levels based on pattern formation and
statistical performance; former price points where a
significant amount of volume occurred; or through technical
indicators like Fibonacci lines or moving averages. Securing
profit can be done all at once by exiting an entire position or
a trader may take profit along the way as a winner rides a
trend. Stop-losses should be moved when a position is
profitable to secure gains.
As you will see, however, I specifically do not delineate hard
(definitive) profit points on chart patterns or trends
highlighted for this handbook and do not frequently follow a
strict system where “if X crypto breaks out it will reach Y
target level.” Why? Because frankly profit points are often
arbitrary and may vary significantly depending on the
particular disposition of each chart. Thus, assuming each
pattern or trend break will result in a specific target seems
futile.
What I look for, rather, are technical indicators signaling a
weakening in the move or a looming reversal and make
each determination on a case-by-case basis. In other words,
I look to take profit and exit a trade on the same grounds
and for the same reason I entered the trade: the technical
disposition of the chart suggests an imminent reversal. In
conjunction, I look to past pattern performance for
guidance, but it depends dominantly on whether technical
indicators are present.
This is not to say traders who highlight specific targets are
going to be wrong or that I don’t do it on occasion. Merely, I
am saying I don’t believe black and white profit points
always exist for each trade, especially before it begins. So, I
don’t want to leave an unrealistic impression on new
traders. I look to maximize returns in a dynamic market
based on what the technical indicators suggest as it
evolves. Nevertheless, when I have a position that is
comfortably in the profit zone, I rearrange stop-losses to
ensure the position will remain profitable. If you feel more
comfortable trading with specific targets and apply any of
the methodologies mentioned in the paragraphs above, I
see no problem with that. In Chapter 10 of Part III, I teach
my evidence-based approach to tackling each trade and
offer an example trade going through the entire process,
including profit taking. Please refer to this section to see a
profit-taking illustration in action. The Divergences in Action
section in Chapter 8 also exhibits a nice profit-taking
illustration.
Chart Pattern Performance Analysis and Methodology
This analysis aims to help traders better understand the
performance of commonly occurring chart patterns in the
volatile cryptocurrency markets. To date, no crypto-centric
statistics exist for traders to gauge past performance of
chart patterns. To assist the crypto community with this
endeavor, I examined the top 100 cryptocurrencies
(excluding stable coins and a few coins with insufficient data
or other flaws) to draw statistics on each commonly
occurring pattern. For each pattern, I derived the
frequencies of breakouts vs. breakdowns, trend
continuations vs. reversals, and I measured the gain or
decline percentage between a breakout or breakdown and
the next relative period of consolidation or trend reversal.
Traders can use breakout direction and averaged price
performance findings as tools when considering future
pattern-based trades. Moreover, trend continuation and
reversal frequencies may be particularly useful when
examining patterns with a specific preceding trend bias or if
the breakout statistics are near a 50-50 coin toss.
For each crypto, both the charts for USD(T) traded pairs and
Bitcoin (BTC) traded pairs were examined. Thereby ensuring
traders see any differences in market behavior between
both types of commonly traded markets. I also provide the
combined averages exclusively for handbook readers
interested in the aggregate data. However, in several
instances, the results clearly indicate differences between
USD(T) and BTC traded pairs. Therefore, I suggest traders
pay particular attention to the performance for each
individually traded pair because the findings are going to be
more precise for the market you are trading.
All statistics are derived from only the 1D charts.
Consequently, these statistics are only relevant to daily time
frame chart pattern performance and are geared toward
swing and position traders. I strongly urge new traders to
only trade chart patterns on larger time frames (1D or 4H).
While identifiable patterns occur on very short frames,
including down to the 1-minute chart, the reliability of the
patterns in my opinion is greatly reduced. Of course, the
gain or decline percentages will also generally be much
smaller on shorter time frames.
The study examined chart pattern performance on the basis
of relativity. Meaning, the gain or decline was measured by
the distance between the breakout/breakdown and the high
or low at the next trend reversal or period of consolidation
relative to the examined pattern’s size. Considerations
included the duration and size of the next succeeding
consolidation period, the initial run up of the examined
pattern (i.e. pole length), and any trend break following the
initial pattern. If the following period(s) of consolidation was
smaller than the initial pattern, then two or more
consecutive periods could be counted until the relative size
of the initial pattern was met. Figure 7.2 featured below
highlights colored dashes marking the close points for the
previous pattern(s). For hundreds of additional examples
please see chartlogic.io .

Figure 7.2 NEO/BTC, 1D, 2016-2018, Bittrex (tradingview

chart)
The measured gains are offered in three tiers: unfiltered
averages, filtered averages excluding outliers over 400%,
and filtered averages excluding any gainers over 100%. This
is to give traders a multi-level means of measuring past
performance. One of the obvious findings is crypto’s overall
superior price performance compared to equities or other
markets. Understand, crypto is known for its extreme
volatility, which is why it can be so lucrative to trade. Thus,
don’t simply assume averages negating all gainers over
100% are going to be the best gauge of future performance.
In some cases, like descending triangles, a majority of those
that broke out positively well out-performed a 100% gain.
So, consider the possible significance of each tier. Tiers may
be tested as targets, and, in a future edition, I will convey
results for tier-based targets.
Chart patterns were broken down into two primary
categories: continuation-biased patterns and top and
bottom reversal patterns. Each continuation-biased pattern
was examined for its tendency to breakout or breakdown as
a whole, irrespective of any preceding trend disposition.
Additionally, patterns were also examined for continuation
performance based on breakouts and breakdowns following
an immediately preceding uptrend (bull trend) or downtrend
(bear trend). A “C” or “R” designation for each examined
pattern distinguished whether the pattern continued or
reversed its immediately preceding trend (the trend intact
when the pattern began – relative to the examined pattern’s
size).
Please note, volume is omitted on initial pattern
identification examples in this handbook to provide the
clearest examples of form. As with all trading methods
described in this handbook, each pattern should be
analyzed in light of the totality of the circumstances and in
conjunction with other indicators and techniques.
Finally, understand the data came solely from the top 100
cryptos and their limited historical record. I did my best to
source charts that spanned the entire history of each crypto.
Some went back as far as 2015 or earlier, while many
others are newer and came around during or after the 2017
ICO boom. Consequently, the limited historical record of
crypto means limited data for pattern analysis. In total,
roughly 1,800 patterns were carefully examined manually
under a rigid set of rules. For a complete summary of the
methodology, see the end of the book or read
chartlogic.io/methodology .
Many common continuations patterns and some reversal
patterns were adequately represented in the data for
analysis, however, some patterns, particularly rare types of
bottoms only had a few examples. Still, I define and give
examples and data for them. I try to note all cases where I
think data is insufficient or should be taken lightly but
readers should judge for themselves how they want to
interpret the sample sizes and findings. Also, some tables
have an asterisk noting where findings may be unbalanced
and should be taken lightly. Overall, understand the
limitations of the study and know that more data will be
added over time and these numbers may change as more
data is aggregated. Nevertheless, the findings are very
interesting and some have already affected how I trade, and
I am excited to share them with you!
Note: The patterns described and defined in this handbook
follow the definitions I use and apply in the crypto markets
and may not coincide precisely with definitions of the same
patterns used by other traders for trading stocks,
commodities, or other commonly traded assets. The pattern
definition and recognition here is to give traders the best
examples of chart patterns in the crypto markets. Many
other patterns and other definitions exist, and I encourage
readers to use this as a stepping-stone to explore the wider
world of pattern analysis. In terms of pattern durations, I try
to stay consistent with widely used stock traders, but some
things may differ.
Continuation-Biased Patterns
Continuation patterns are exactly as they sound – they tend
to continue the trend that already exists. For example, if the
current trend is bearish with lower highs and lower lows, a
continuation pattern is likely to complete with a downside
break that furthers the bearish trend. Similarly, if the
current trend is bullish with higher highs and higher lows, a
continuation pattern is likely to further the bullish trend with
an upside break. Continuation patterns can offer traders a
fresh entry into an existing trend or affirm a bias and justify
keeping an existing position in the current trend.
Importantly, continuation patterns have a bias, but they
may break the other way signaling a temporary or enduring
reversal. So, it’s important to understand when traders say
continuation pattern that they mean a pattern more
commonly associated with a continuation than reversal.
Flags

Figure 7.3 ETH/USD, 1D, 2019, Kraken (tradingview chart)

The flag is a classic short-term and continuation-biased
pattern. Marked by its long run-up or downtrend (the pole)
followed by a rectangular or parallelogram consolidation
(the flag). A flag is different from a pennant in that a flag is
rectangular or shaped like a parallelogram. However, both
have the pole preceding the consolidation period.
Additionally, flags may point downward or upward like a
wedge, however, a wedge has two converging or fanning
trend lines rather than parallel trend lines. If the
consolidation is triangular, then it’s not a flag but a triangle,
pennant, or wedge depending on the shape and duration of
formation. For the purpose of this study, all rectangular or
parallelogram flags, regardless of duration and angle, were
considered. All flags must have at least two touches on each
trend line (support and resistance).
Bull Flags

Figure 7.4 XMR/USDT, 1D, May 2019, Binance (tradingview

chart)
A bull flag is marked by a rectangular or parallelogram
consolidation (flag) following a steep bullish run-up (pole).
The bull flag demonstrates bullish consolidation during an
uptrend and upon breakout often continues the trend. The
flag portion marks a brief pause in the buyers’ overall
excitement and a controlled retracement before an asset’s
price rise continues. For traders who enjoy pattern targets,
another pole’s length is standard here.

Bear Flags

Figure 7.5 LTC/USD, 1D, 2018, Coinbase (tradingview

chart)
The bear flag is the opposite of a bull flag and is marked by
its inverted flagpole, temporary rectangular or
parallelogram consolidation, and continuation downward.
The flag marks a brief pause in the sellers’ overall
enthusiasm before an asset’s decline continues. Support
break marks the entry. Similar to the bullish counterpart,
traders often target a pole’s length below.
Table 7.1
Performance Statistics of Flags
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 211 196 407
Patterns

Upside Breakout 51.18% 39.8% 45.49%

%

Downside 48.82% 60.2% 54.51%

Breakdown %

Trend 84.61% 88.15% 86.38%

Continuation %
for Bull Flags
(Preceding Bullish
Trend)
Trend Reversal % 15.39% 11.85% 13.62%
for Bull Flags
(Preceding Bullish
Trend)
Trend 90.42% 90.83% 90.62%
Continuation %
for Bear Flags
(Preceding
Bearish Trend)
Trend Reversal % 9.58% 9.17% 9.37%
for Bear Flags
(Preceding
Bearish Trend)
Unfiltered Avg. % 169.88% 86.37% 128.12%
Gain from Upside
Breakout
Avg. % Decline -46.71% -37.05% -41.88%
from Downside
Breakdown
Filtered Avg. % 89.12% 76.21% 82.66%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 50.17% 46.74% 48.45%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)
 Summary of the Findings
According to this study, flags live up to their continuation
reputation. Despite results indicating a slight overall bearish
bias visible in the total breakout vs. breakdown ratios at
45.49% vs. 54.51%, the consistency of flags acting as
continuation patterns is irrefutable. Bull flags found in
USD(T) pairs continued the trend 84.61% of the time, while
bear flags continued downward 90.42% of the time. BTC
pairs showed similar results with bull flags continuing the
trend upward 88.15% of the time, while bear flags continued
downward 90.83% of the time.
Notably, price performance leaned heavily to USD(T) pairs
with unfiltered gains roughly twice as high as those in the
BTC pairs. The breakdown performance also weighed
heavily toward USD(T) traded pairs with an average decline
of -46.71% vs BTC pairs’ -37.05%. So, traders using USD(T)
pairs may reasonably expect greater volatility when trading
flags. The elevated volatility of USD(T) pairs is a common
theme with nearly all patterns and is noted in this section
and also addressed in greater detail in Chapter 11 of Part III.
Interestingly, bull flags also appeared more frequently in
USD(T) pairs, while bear flags appeared more frequently in
BTC pairs, which may help explain why BTC pairs show a
heavier overall bearish disposition with 60.2% breaking
down. For more on this insight, please also read Chapter 11.

Pennants
Figure 7.6 LTC/USD, 1D, 2019, Coinbase (tradingview
chart)
A pennant is another common short-term continuation-
biased pattern marked by its pole and triangular or wedgy
consolidation. The key difference between a pennant and a
triangle or wedge is the duration of formation. Triangles and
wedges are formed over longer periods (21 or more days),
while pennants are formed over shorter periods (several
days to 20 days). Structurally, however, they may look
similar. Because of the short duration in which pennants are
formed, I tend to only seek a minimum two touches on each
support and resistance line so long as the consolidation is
tightly triangular or wedgy. Like flags, many traders target a
pole’s length.
Notably, a day trader or scalp trader may not care for the
time-based pennant distinction and may call low-frame
patterns by their triangular or wedge shape regardless of
formation duration. One could also apply trading periods
rather than days to distinguish triangles from pennants. For
example, requiring pennants be formed under 21 periods
(not necessarily 1D periods). However, the performance
analysis results here would not be relevant.
 Bull Pennants

Figure 7.7 (tradingview charts)

BNB/BTC, 1D, Dec. 2017, Binance (left); XMR/USD, 1D, Aug.
2017, Kraken (right)
Bull pennants form in a steep uptrend (the pole) and often
signal upward continuation after a brief tick of triangular or
wedgy consolidation. A break above the resistance line
marks the entry.

Bear Pennants
Figure 7.8 (tradingview charts)
ADA/USD, 1D, July 2019, Kraken (left); BAT/BTC, 1D, June
2019, Bittrex (right)
The bear pennant is the opposite of the bull pennant and
often signals a bearish continuation after a brief tick of
consolidation. Bear pennants are marked by a declining
flagpole and a triangular or wedgy consolidation. A break
below the support line marks the entry.
Table 7.2
Performance Statistics of Pennants
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 358 324 682
Patterns
Upside Breakout 47.76% 44.75% 46.25%
%
Downside 52.24% 55.25% 53.74%
Breakdown %
Trend 71.84% 68.88% 70.36%
Continuation %
for Bull Pennants
(Preceding Bullish
Trend)
Trend Reversal % 28.16% 31.12% 29.64%
for Bull Pennants
(Preceding Bullish
Trend)
Trend 85.43% 85.41% 85.42%
Continuation %
for Bear Pennants
(Preceding
Bearish Trend)
Trend Reversal % 14.57% 14.59% 14.58%
for Bear Pennants
(Preceding
Bearish Trend)
Unfiltered Avg. % 140.66% 99.93% 120.29%
Gain from Upside
Breakout
Avg. % Decline -39.9% -30.6% -35.25%
from Downside
Breakdown
Filtered Avg. % 103.24% 78.87% 91.05%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 46.83% 50.6% 48.71%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Pennants clearly support the continuation-biased theory in
the crypto markets. While they broke upward and downward
at a near equal rate on all charts individually and
collectively, with a slight bearish bias for both pairs (53.74%
total avg.), they tend to continue the immediately preceding
trend a strong majority of the time. Of the USD(T) pairs,
71.84% of bull pennants continued the trend, while 85.43%
of the bear pennants broke downward. Similarly, 68.88% of
the bull pennants broke upward, while 85.41% of the bear
pennants broke downward for BTC traded pairs. Undeniably,
these findings show a strong correlation between pennants
and trend continuation for both the USD(T) and BTC paired
markets. Indeed, both markets shared strikingly similar
results. These odds suggest pennants are a great pattern for
a quick and lucrative continuation play.
Pennant price performance exhibited gains and declines in
the moderate range for crypto. Breakdowns for both pairs
were in the 30% range with USD(T) pairs breaking down
further at 39.9%. Unfiltered gains were relatively modest
with USD(T) pairs again showing increased volatility at
140.66% vs. BTC pairs’ 99.93%. Imagine telling a stock
trader a 100-140% average gain is modest! Interestingly,
some of the largest gainers sampled in this study were from
pennants like Matic/USD(T) with a 1,200% gainer, but the
small movers appear to average those outliers nicely.

Triangles
Triangles, as a pattern class, are comprised of various
triangular and continuation-biased patterns. Triangles are
categorized by the slopes of the support and resistance
lines and include symmetrical, ascending, and descending
triangles. Triangles can be a bullish or bearish and a
continuation or reversal pattern; however, different triangles
support different biases. All triangles must be formed over
at least 21 days and collectively have at least 5 touches on
the support and resistance lines.

Symmetrical Triangles

Figure 7.10 EOS/USD, 1D, 2018, Kraken (tradingview chart)

The symmetrical triangle is as it sounds – a triangle with
symmetrical support and resistance lines (lower highs and
higher lows). Symmetrical triangles can be continuation or
reversal indicators, but, as detailed in the study below, they
are dominantly bearish in the crypto markets. In Figure 7.10
above, the symmetrical triangle marked a bearish
continuation. The difference between the symmetrical
triangle and symmetrical-triangle-shaped pennant is the
duration in which they are formed. Triangles form over
weeks or months (21+ days), while pennants are a short-
term consolidation. Thus, some shorter frame traders might
even trade the lower highs and higher lows of symmetrical
triangles as they form.
Featured above in Figure 7.11 is a multi-month symmetrical
triangle from the WAVES/BTC weekly (1W) chart. Notice how
the converging highs and lows created large valleys and
consider how a swing trader could have capitalized using a
trend channel for the second valley.
Table 7.3
Performance Statistics of Symmetrical Triangles
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 132 121 253
Patterns
Upside Breakout 37.88% 21.48% 29.68%
%
Downside 62.12% 78.52% 70.32%
Breakdown %
Bullish Trend 52.72% 23.4% 38.06%
Continuation %
(Preceding Bullish
Trend)
Trend Reversal % 47.28% 76.6% 61.94%
(Preceding Bullish
Trend)
Bearish Trend 74.64% 78.87% 76.75%
Continuation %
(Preceding
Bearish Trend)
Trend Reversal % 25.36% 21.13% 23.24%
(Preceding
Bearish Trend)
Unfiltered Avg. % 193.19% 142.05% 167.62%
Gain from Upside
Breakout
Avg. % Decline -47.44% -44.06% -45.75%
from Downside
Breakdown
Filtered Avg. % 104.29% 73.75% 89.02%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 54.06% 51.15% 52.6%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Contrary to what Bulkowski found in his widely used pattern
analysis in the stock markets, [xv] symmetrical triangles do
not support a bullish breakout bias in the crypto markets
according to this study! In fact, they’re overwhelmingly
bearish on both USD(T) and BTC traded pairs. Overall,
70.32% of all symmetrical triangles broke downward. BTC
traded pairs showed a striking 78.52% breakdown rate,
while USD(T) pairs showed a 62.12% breakdown rate. Trend
continuation weighed heavily to the bears for both pairs
with 74.64% (USD(T)) and 78.87% (BTC) continuation rates
for triangles appearing in a downtrend. Symmetrical
triangles with a preceding bull trend showed dismal
continuation results on BTC pairs with a mere 23.4%
continuation rate. The USD(T) pairs fared better with a
majority 52.72% continuation rate. Still, these numbers are
notably different from symmetrical triangles in stock
markets, which, according to Bulkowski, break upward 60%
of the time. [xvi] A clear visual observation from cataloging
400 charts is the presence of symmetrical triangles at the
top of bull trends, particularly after several bullish advances.
These findings are exciting and important to crypto traders
because applying stock-based statistics may not be as
precise. For sure, the sample size in the stock market study
was larger but of the available data in the top 100 cryptos,
totaling 253 samples, these results undeniably show a clear
divergence in findings. As time goes on, I look forward to
further tracking the performance of symmetrical triangles.
Price performance for symmetrical triangles showed
elevated swings for USD(T) pairs. The USD(T) pairs’
unfiltered gains and gains filtering outliers over 400% were
considerably higher than those of the BTC paired markets.
However, when filtering all gainers above 100%, both pairs
were closely matched: USD(T) pairs averaged a 54.06% gain
and BTC pairs averaged a 51.15% gain. Average declines
were similar at -47.44% (USD(T)) and -44.06% (BTC), which
showed only a slightly heavier decline for the USD(T) pairs.

Ascending Triangles
Figure 7.12 Waves/BTC, 1D, March/April 2017, Bittrex
(tradingview chart)
Notice the tightly wound consolidation and “retests” before
continuation accelerated.
The ascending triangle is marked by its consecutive higher
lows and flat top, which roughly creates a right triangle.
Generally, I want at least three consecutive lows trending
higher forming the support line with the more support
touches the better. I give less deference to the resistance
line so long as at least two clearly identifiable highs end flat
or nearly flat. The support line should touch most of the
higher lows, forming a tightening consolidation. The higher
lows indicate bullish momentum and the break above the
flat top indicates a higher high and departure from the
consolidation period.
Table 7.4
Performance Statistics of Ascending Triangles
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 52 26 78
Patterns
Upside Breakout 63.46% 50% 56.73%
%
Downside 36.54% 50% 43.27%
Breakdown %
Bullish Trend 66.66% 100%* 83.33%*
Continuation %
(Preceding Bullish
Trend)
Trend Reversal % 33.34% 0%* 16.67%*
(Preceding Bullish
Trend)
Bearish Trend 43.75% 72.22% 57.98%
Continuation %
(Preceding
Bearish Trend)
Trend Reversal % 56.25% 27.78% 42.01%
(Preceding
Bearish Trend)
Unfiltered Avg. % 247.39% 191.69% 219.54%
Gain from Upside
Breakout
Avg. % Decline -50.94% -35.76% -43.35%
from Downside
Breakdown
Filtered Avg. % 133.44% 109.27% 121.35%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 64.82% 44.29% 54.55%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Ascending triangles have a reputation for bullish
continuation and bullish reversals. Here, the study confirms
such bias but with a twist. Both BTC and USD(T) pairs
averaged together show the upside breakout rate at 56.73%
and trend continuation for ascending triangles with a
preceding bullish trend was 83.33%. Overall, this supports
the bullish theory, but I emphasize the findings individually
are quite different. Ascending triangles in BTC traded pairs
with a preceding bearish trend played a significantly greater
role in bearish continuations than in the USD(T) counterpart
(72.22% vs. 43.75%, respectively). This is precisely the type
of detail I am looking for as a trader. Additionally, ascending
triangles appeared twice as frequently in USD(T) pairs than
BTC pairs.
For USD(T) traded pairs, 63.46% of all examined ascending
triangles broke upward, regardless of whether a bullish or
bearish trend immediately led up to the pattern. Even
better, USD(T) ascending triangles appearing with a
preceding bull trend continued that trend 66.66% of the
time. Moreover, the USD(T) ascending triangles with a
preceding bear trend still staged a bullish reversal 56.25%
of the time.
However, when examining the BTC traded pairs, the total
breakout vs. breakdown percentages were a coin toss. But,
all of the triangles with a preceding bullish trend broke
upward! So, how can that be? It’s simple: a majority of the
ascending triangles found in the Bitcoin traded pairs were
preceded by a downtrend. Still, these findings support the
theory that ascending triangles found with a preceding
bullish trend are more likely to break upward but caution
BTC traded ascending triangles preceded by a downtrend
appear far more likely to continue down than reverse. Thus,
these results again highlight the importance of looking at
the data separately depending on whether you are trading
against USD(T) or Bitcoin.
In terms of price performance, ascending triangles have big
upside potential. Aggregate unfiltered gains totaled an
average 219.54% rise for all ascending triangles. USD(T)
traded pairs performed better than BTC pairs with average
247.39% vs. 191.69%, respectively. USD(T) traded pairs’
superior performance trickled down when filtering the
results as well. So, keep that in mind when you see an
ascending triangle on a USD(T) pair.

Descending Triangles

Figure 7.13 BTC/USD, 1D, 2018, Coinbase (tradingview

chart)
Bitcoin sports two beautiful large and clear descending
triangles. The first was a result of an 11-month consolidation
following the 2017 bubble peak. The second marked the top
of the 2019 recovery.
The descending triangle is the mirror image of an ascending
triangle. Rather than a series of higher lows and a flat top,
its marked by a series of lower highs and a flat bottom
(support line). The descending highs show the buyers’
inability to break the bearish trend, and the break below the
support line suggests a lower low, departing from the long-
standing support level, and thus bearish continuation.
Importantly, descending triangles can be both continuations
and reversals, and failed descending triangles can break
violently the opposite direction. So, while having an overall
bearish disposition, the descending triangle can be a big
mover in either direction. Still, according to my findings,
descending triangles should be viewed with a bearish
disposition. As shown in the Figure 7.13 above, both the
continuation and reversal favored the bears.

Figure 7.14 BTC/USD, 1D, 2018, Coinbase (tradingview

charts)
The descending triangle featured in Figure 7.14 was a result
of nearly a year of consolidation following the 2017 Bitcoin
bubble peak. It provided one of the best short opportunities
in Bitcoin’s history because of its protracted and clear
development. Note the smaller symmetrical triangle inside
the last third of the descending triangle. This provided two
clear short opportunities. By shorting both breaks, I
averaged my entry and risk while entering a heavier second
short below the descending triangle support line. Patterns
inside other patterns can offer additional strategic
opportunities.

Table 7.5
Performance Statistics of Descending Triangles
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 57 64 121
Patterns
Upside Breakout 33.34% 37.5% 35.42%
%
Downside 66.66% 62.5% 64.58%
Breakdown %
Bullish Trend 45.45% 40% 42.72%
Continuation %
(Preceding Bullish
Trend)
Trend Reversal % 54.55% 60% 57.27%
(Preceding Bullish
Trend)
Bearish Trend 74.28% 65.11% 69.69%
Continuation %
(Preceding
Bearish Trend)
Trend Reversal % 25.72% 34.89% 30.3%
(Preceding
Bearish Trend)
Unfiltered Avg. % 269.07% 103.16% 186.11%
Gain from Upside
Breakout
Avg. % Decline -49.53% -40.9% -45.21%
from Downside
Breakdown
Filtered Avg. % 114.80% 71.13% 92.96%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 52.66% 54.84% 53.75%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Descending triangles appear to be the bearish heavyweight
of the triangle class but when they go against the odds, the
upside performance can be impressive. The aggregate
breakdown percentage for combined pairs was 64.58%, with
little difference when separating the findings (66.66% for
USD(T) pairs and 62.5% for BTC pairs). Both USD(T) and BTC
traded pairs showed strong bearish follow-through with
triangles continuing a preceding bear trend 74.28% and
65.11% of the time, respectively. Notably, neither pair
showed a positive breakout correlation with triangles
preceded by a bull trend.
Interestingly, USD(T) descending triangles that broke
upward against the odds showed striking price action
performance. The average unfiltered gain for USD(T) pairs
was an impressive 269.07% with a strong majority (68.42%)
of breakout descending triangles gaining over 100%. So,
please don’t assume excluding big gainers necessarily helps
with accuracy or realistic expectations! This shows a big
upside to descending triangles that fail to break downward
in USD(T) pairs.
Unfortunately, the BTC pairs did not perform nearly as well
and only saw an average 103.16% breakout gain even
including the unfiltered gainers. This same disparity
continued when filtering the outliers over 400% with USD(T)
pairs averaging 114.80% gains, while the BTC pairs only saw
71.13%. Still, upward breakouts against the odds proved
substantial for both categories. On the downside, average
declines from breakdowns were -49.53% for USD(T) pairs
and -40.9% for BTC pairs. Hence, USD(T) pairs punished
bulls more severely.
Wedges
Wedges are often triangular but differ from triangles in that
they are pointed upward, downward, or broaden outward.
Common wedges include rising wedges, falling wedges, and
broadening wedges. Like triangles, I require that wedges
have at least five touches collectively on support and
resistance lines. Ideally, however, three on each line is
preferred. Traditionally, many traders classify falling and
rising wedges as reversal patterns. However, despite
recognizing and supporting their reversal potential, I put
them in this category because they also act as a common
continuation pattern.
Falling Wedges

Figure 7.15 BTC/USD, 1D, Nov. 2018 - March 2019,

Coinbase (tradingview chart)
The falling wedge is my favorite pattern for a short-term
swing trade. I find it highly reliable for a strong bounce but
unreliable in the longer-term. Defined by its consecutive
lower highs and lower lows that converge into a wedge-
shaped point, it appears frequently as a bullish reversal
pattern during a downtrend (wedge on the left featured in
Figure 7.15) or as a continuation on a bullish retrace (wedge
on the right featured in Figure 7.15). As mentioned
previously, a wedge shape may be a pennant if it occurs in
shorter time frames (less than 21 days). Falling wedges can
signal reversal and continuation, but, on either occasion, I
target an upside breakout. If compelled to make a target,
the top of where the wedge began would be on the high
side.
I caution the greatest issue with the falling wedge is a
breakout that fails pretty quickly and resumes a downtrend.
The performance study below further reinforces and
discusses this issue in greater detail. But, for a great
example, see the Ethereum chart featured below in Figure
7.16. Despite the failure to sustain the trend, by exercising
careful attention or with a trailing stop-loss, this trade still
could have netted ~25% (no leverage), and 25% is on the
low side of failed breakouts.

Figure 7.16 ETH/USDT, 1D, 2019, Binance (tradingview

chart)
Table 7.6
 Performance Statistics of Falling Wedges
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 52 49 101
Patterns
Upside Breakout 84.61% 81.63% 83.12%
%
Downside 15.39% 18.37% 16.88%
Breakdown %
Bullish Trend 85.71% 87.87% 86.79%
Continuation %
(Preceding Bullish
Trend)
Trend Reversal % 14.29% 12.13% 13.21%
(Preceding Bullish
Trend)
Bearish Trend 16.66% 29.41% 23.03%
Continuation %
(Preceding
Bearish Trend)
Trend Reversal % 83.34% 70.59% 79.96%
(Preceding
Bearish Trend)
Unfiltered Avg. % 187.97% 150.53% 169.25%
Gain from Upside
Breakout
Avg. % Decline -50.06% -36.66% -43.36%
from Downside
Breakdown
Filtered Avg. % 127.81% 102.55% 115.18%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 67.45% 46.25% 56.85%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

This study confirms what I always thought as a crypto
trader, falling wedges are overwhelmingly bullish on all
accounts. The upside potential is clear as 83.12% of all
falling wedges broke upward (84.61% of USD(T) pairs and
81.63% of BTC pairs). Not surprisingly, 85.71% of USD(T)
and 87.87% of BTC falling wedges with preceding bull trends
continued the trend. Finally, the reversal potential is obvious
as 83.34% of falling wedges in USD(T) traded pairs reversed
a bearish trend. Similarly, in BTC traded pairs, only 29.41%
of falling wedges continued a bearish trend, while 70.59%
staged a reversal.
However, as I alluded to above, these bullish breakouts and
reversals may be short-lived. For BTC traded pairs, two-
thirds of reversals breaking upward from a preceding
downtrend failed quickly, and both BTC and USD(T) pairs
had scores of wedges that failed to make it halfway back to
the wedge top or sustain an enduring breakout beyond a
quick pop. Still, despite failing to result in dependable
sustained breakouts, these wedges provided a consistent
breakout pop.
In terms of overall price action compared with other
patterns in the study, the unfiltered and filtered gains were
moderate. So, keep this in mind when trading falling
wedges. Still, SIA led the outlier pack with a beautiful
1,760% USD(T) gainer.
In sum, the study supports my theory that falling wedges
are an excellent short-term breakout trade, but they should
be met with caution and profit-taking stop-losses should be
set quickly after the initial breakout. It’s clear, falling
wedges are good for a short-term pop but cannot be relied
on consistently for anything further.

Rising Wedges
Figure 7.17 BTC/USD, 1D, 2020, Coinbase (tradingview
chart)
Two opportunities to short BTC/USD here: the first at trend
break or again at the retest of the broken support line.
The rising wedge is the bearish version of the falling wedge,
and also makes for a fantastic swing trade opportunity.
Rising wedges that occur in an uptrend may intuitively look
bullish with consecutive higher highs and higher lows that
converge into a wedge-shaped point. Despite the bullish
appearance, the rising wedge is a classic bearish reversal
and continuation pattern. Only on rare occasions do they
break upward. Often, rising wedges appear as a top during
an uptrend signaling reversal or as the top of a bounce
during a downtrend signaling bearish continuation. Breakout
is confirmed below the support line. For target loving
traders, I first look to the lowest low creating the wedge.

Table 7.7
Performance Statistics of Rising Wedges
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 36 28 64
Patterns
Upside Breakout 8.33% 14.28% 11.3%
%
Downside 91.67% 85.72% 88.69%
Breakdown %
Bullish Trend 15% 7.15% 11.07%
Continuation %
(Preceding Bullish
Trend)
Trend Reversal % 85% 92.85% 88.92%
(Preceding Bullish
Trend)
Bearish Trend 100%* 78.57% 89.28%*
Continuation %
(Preceding
Bearish Trend)
Trend Reversal % 0%* 21.43% 10.71%*
(Preceding
Bearish Trend)
Unfiltered Avg. % 138.83% 67.87% 103.35%
Gain from Upside
Breakout
Avg. % Decline -51.68% -49.77% -50.72%
from Downside
Breakdown
Filtered Avg. % 138.83% 67.87% 103.35%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 86.25% 48.16% 67.2%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Opposite to the falling wedge, the rising wedge is
dominantly bearish. A whopping 91.67% of all USD(T) rising
wedges broke downward, while 85.72% of the BTC pairs
broke downward. Both pairs showed strong bearish
continuation tendencies with 100% of all USD(T) and
78.57% of all BTC pairs continuing a preceding bearish
trend. Notably, this 100% statistic is likely due to the limited
sample size but it’s safe to say rising wedges strongly favor
bearish continuation here. Both pairs also showed strong
bearish reversal potential with patterns preceded by bullish
trends breaking downward 85% (USD(T)) and 92.85% (BTC)
of the time. Regarding the price action performance, the
unfiltered and filtered price gains are relatively low
compared to other patterns, meaning don’t expect a major
push even if a rising wedge breaks upward. BTC pairs
performed notably worse than USD(T) pairs.

Broadening Wedges

Figure 7.18 LEO/USD, 1D, 2019, Bitfinex (tradingview

chart)
The broadening wedge is the opposite of a regular wedge.
Rather than support and resistance lines converging, trend
lines repel, creating a widening fan shape. If sporting a fan
that points upward, regardless of the immediately preceding
trend trajectory (up or down), with higher highs and flat or
higher lows, it’s called an ascending broadening wedge. If
the fan is facing downward with lower lows and flat or lower
highs, it’s a descending broadening wedge (exemplified
above in Figure 7.18). Notably, I do not distinguish
broadening wedges further based on angles like some
traders do.
Generally, if the support and resistance line are both
trending the same direction, it signals a continuation pattern
bias. However, if the wedge support line and resistance line
are symmetrical going opposite directions (one up one
down), then it may be construed as a broadening top or
bottom, which can be a reversal signal and is detailed in the
tops and bottoms section.
Similar to other patterns like triangles, I seek a minimum
five touches on the support and resistance lines. A break
above the resistance line or below the support line marks
the entry. Be careful setting stop-losses on broadening
wedges, as the opposing trend line is likely too far from the
initial breakout/breakdown for a reasonable stop-loss. I often
set a stop-loss inside the wedge but comfortably beyond the
freshly broken trend line.
Figure 7.19 BTC/USD, 1D, 2019, Coinbase (tradingview
charts)
Here is a clear example of a forming and completed
broadening wedge from Bitcoin in Spring 2019. Notice how
both trend lines are supported by higher highs and lows,
which means it’s an ascending broadening wedge. Also,
note the breakout volume.

Table 7.8
Performance Statistics of Broadening Wedges
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 23 17 40
Patterns
Upside Breakout 47.83% 47.05% 47.44%
%
Downside 52.17% 52.95% 52.56%
Breakdown %
Ascending Wedge 80% 100%* 90%*
Bullish Trend
Continuation %
(Preceding Bullish
Trend)
Ascending Wedge 100%* 85.71% 92.85%*
Bearish Trend
Continuation %
(Preceding
Bearish Trend)
Descending 50% 100%* 75%*
Wedge
Bullish Trend
Continuation %
(Preceding Bullish
Trend)
Descending 66.66% 50% 58.33%
Wedge
Bearish Trend
Continuation %
(Preceding
Bearish Trend)
Unfiltered Avg. % 213.4% 87.87% 150.63%
Gain from Upside
Breakout
Avg. % Decline -42.12% -48.16% -45.14%
from Downside
Breakdown
Filtered Avg. % 149.75% 87.87% 118.81%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 56.7% 36% 46.35%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

The available data is pretty low to draw anything conclusive.
However, the total breakout vs. breakdown averages show
that broadening wedges on the whole are a pretty neutral
pattern. While the results indicate a high degree of
continuation for ascending broadening wedges, the data is
too small to apply those numbers strictly. I would simply say
the results show a notion of bias toward continuation for
ascending broadening wedges. Price action for descending
broadening wedges in USD(T) pairs was exceptional, despite
the small sample size. Of the 12 examined descending
broadening wedges, all wedges preceded by a bull trend
that broke out positively rose more than 200% with an
average gain of 373.4%.
Top and Bottom Reversals
Reversal patterns indicate the current prevailing trend and
market forces (buyers or sellers) are running out of steam
and a trend change is imminent. Sometimes a reversal
indicates a temporary trend change, while for others it may
indicate a long-term bottom or top. In many cases, it may
be hard to tell the difference. Nevertheless, even a shorter-
term reversal play can be very lucrative.
Double Tops

Figure 7.20 BTC/USD, 1D, 2017, Coinbase (tradingview

chart)
This Bitcoin example exhibits three double tops related to
the deflating of the 2017 bubble. The first slightly uneven
top marked the end of the run, while the second and third
evenly matched double tops marked the reversal of the first
and second major bounces.
A double top occurs when buyers make a new high, lose
control but recover a sell-off quickly, and then print an equal
or slightly unequal second high. The double top indicates
buyer exhaustion and inability to carry the positive trend
further. Some traders are strict about the highs being
precisely equal or near to it, but I have found slightly
unbalanced highs just as reliable. Essentially, they show the
same thing: buyers’ inability to push the asset price beyond
the last high. Double tops are common in crypto and can
mark the top of a sustained uptrend or significant bounce.
Sell or short signals are formed by a break below a diagonal
or flat neckline. When possible, I like to draw my neckline
from a diagonal trend of higher lows formed with the second
top if wicks are present rather than at the valley low.
Notably, many traders often use only the valley low as the
neckline, which is flat rather than slanted. My strategy tends
to be on the more aggressive side. However, in some
instances if no diagonal neckline is present, I use the valley
low. Additionally, another way I sometimes play a double
top, if it occurs within a short time frame (not many
weeks/months apart), is to short or sell at the second high
after the first red-bodied candle closes below a reversal
candle. For example, after a bearish confirmation candle
following a spinning top, gravestone doji, shooting star, or
another reversal-leaning candle. Then, I put a stop-loss
above the recent high. This strategy is riskier in that the
pattern is technically not confirmed; however, the entry is
often much better.

Table 7.9
Performance Statistics of Double Tops
 USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 26 20 46
Patterns
Avg. % Decline -71.88% -63.05% -67.46%

Summary of the Findings (omitted)

Double Bottoms

Figure 7.22 ETC/BTC, 1D, 2016/17, Bittrex (tradingview

chart)
Inverse to the double top, a double bottom occurs when
sellers make a new low, lose control but sink a following
rally quickly, and then print an equal or slightly unequal
second low. The double bottom indicates seller exhaustion
and inability to carry the trend further to a new low. As with
the double top, I play slightly uneven double bottoms the
same. Double bottoms frequently mark the bottom of a
sustained downtrend or significant dip. Long or buy signals
are formed by a break above either a diagonal or flat
neckline.

Table 7.10
 Performance Statistics of Double Bottoms
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 23 25 48
Patterns
Unfiltered Avg. % 258.15% 230.66% 244.4%
Gain from Upside
Breakout
Filtered Avg. % 126.25% 138.1% 132.17%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 87.25% 72.37% 79.81%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

While the sample size isn’t huge, I find it very impressive
the combined average of 48 double bottoms was 244.4% in
unfiltered gains. To put that into perspective, only 25% of
USD(T) and 36.6% of BTC pairs sampled were under the
100% gain threshold. Undeniably, double bottoms are a
triple-digit winner in this study of the crypto markets. I also
found it interesting that averages filtering outliers over
400% favored BTC pair performance – escaping the
persistent superior performance of USD(T) pairs seen in this
study.
The “Adam” and “Eve” Classification
Some traders distinguish the type of double top or bottom
based on the shape of each low. [xvii] If the low displays a V
shape it’s an “Adam,” while a U shape is an “Eve.” For
example, the “Adam and Eve” double bottom is recognizable
by two differently shaped lows with the first being steeper
and pointier than the rounder second (see Figure 7.23).
Double tops and bottoms with this classification can thus be
“Adam and Eve,” “Adam and Adam,” “Eve and Adam,” or
“Eve and Eve.”

Figure 7.23 KNC/USD c., 1D, 2018/19, Binance

(tradingview chart)
This chart displays an “Adam and Eve” double bottom.

Head and Shoulders Tops

Figure 7.24 XEM/USD c., 1D, 2017/18, Bittrex (tradingview
chart)
The head and shoulders (HS) reversal pattern is a classic
trader favorite. Distinguished by the shape of a head and its
shoulders formed by three highs with the middle being the
highest and both surrounding highs being lower, but at
equal or near equal levels. The HS reversal is found in an
uptrend and shows the buyers’ inability to make three
consecutive higher highs and sellers securing a critical
lower high. The lows below the head and shoulders are
connected to create a support line, which creates the
“neckline.” The breakdown below the neckline should be
targeted for entry.

Table 7.11
Performance Statistics of Head and Shoulders Tops
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 11 10 21
Patterns
Avg. % Decline -70.59% -69.9% -70.24%

Summary of the Findings

Again, a small sample size that shouldn’t be taken as
gospel, but I find it interesting that the breakdown
percentage was within 1% for both pairs. As much as I wish
for an abundance of samples, the chart history is limited
and we will have to wait for further charts to be examined
and greater price history.
Inverted Head and Shoulders Bottoms
Figure 7.25 BTC/USD, 1D, 2019, Coinbase (tradingview
chart)
The inverted head and shoulders (IHS) is the bullish
counterpart to the head and shoulders reversal. Following a
sustained downtrend, three lows are printed with the middle
one being lowest and accompanied by two similarly higher
lows, which creates the appearance of an inverted head and
two shoulders. The IHS shows the sellers’ inability to
continue the trend with three consecutive lower lows and
the buyers securing a critical higher low. Connecting the
peaks/highs of the failed rallies between the lows creates
the neckline. The breakout above the neckline should be
targeted for entry.
Table 7.12
Performance Statistics of Inverted Head
and Shoulders Bottoms
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 3 5 8
Patterns
Unfiltered Avg. % 114% 89.1% 101.55%
Gain from Upside
Breakout
Filtered Avg. % 114% 89.1% 101.55%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % 88.5% 66.83% 77.66%
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings (omitted)

Rounding Tops

Figure 7.26 REP/BTC, 1D, 2017, Poloniex (tradingview

chart)
The rounding top is marked by a series of highs that trend
upward before turning downward creating an inverted bowl-
like shape. The rounding top shows buyers failing to make
consecutive new highs and momentum visibly diminishes in
a rounding fashion. Similar to other top patterns, a diagonal
or lateral neckline is used to mark the sell point or short
entry. As mentioned, I prefer diagonal necklines when
possible because the entry is usually better but with a
slightly higher appetite for risk.
Table 7.13
Performance Statistics of Rounding Tops
USD(T) BTC Traded Combined
 Traded Pairs Pairs Avgs.
# of Examined 7 3 10
Patterns
Avg. % Decline -62.35% -72.5% -67.42%

Summary of the Findings (omitted)

Rounding Bottoms

Figure 7.27 BTS/USD c., 1D, 2017, Poloniex (tradingview

chart)
The rounding bottom is marked by a series of lows that
trend downward before turning upward creating a bowl-like
shape. The rounding bottom shows sellers failing to drive
the price to consecutive new lows and sell power visibly
diminishes in a rounding fashion. Same as the rounding top
and other patterns, a diagonal or lateral neckline is used to
mark the entry.

Table 7.14
Performance Statistics of Rounding Bottoms
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined 7 14 21
Patterns
Unfiltered Avg. % 630% 408.46% 519.23%
Gain from Upside
Breakout
Filtered Avg. % 185.2% 157.27% 171.24%
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % N/A 48.66% N/A
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings

Despite the small sample size, which of course should not
be ignored, the unfiltered gains of both pairs are striking.
However, removing several outliers, some with quadruple
digits, brings the performance back down to earth – at least
relative to crypto. Notably however, all USD(T) pairs and
nearly all of the BTC pairs marked gains over 100%.

Triple Tops
Figure 7.28 ETC/BTC, 1D, 2017, Bittrex (tradingview chart)
The triple top is similar to a double top but with three equal
or near equal highs and two valleys in between. Triple tops
are also similar to a head and shoulders top with the
difference being a head and shoulders has two lower highs
and one higher high in the middle. Triple tops in all markets
are an infrequent occurrence. I only identified a handful of
them in the BTC pairs and none at all in the USD(T) pairs.
Still, traders should be aware of its existence.
Table 7.15
Performance Statistics of Triple Tops
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined N/A 5 N/A
Patterns
Avg. % Decline N/A -80.2% N/A

Summary of the Findings (omitted)

 Triple Bottoms

Figure 7.29 TRX/BTC, 1D, 2018, Binance (tradingview

chart)
The triple bottom is the counterpart to the triple top. As
such, the triple bottom is similar to the double bottom but
with three equal or near equal lows and two failed rallies in
between. Triple bottoms are also similar to inverted head
and shoulders but with equal lows rather than two equal and
one lowest. Triple bottoms are also rare and only appeared
in the BTC pairs.
Table 7.16
Performance Statistics of Triple Bottoms
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined N/A 4 N/A
Patterns
Unfiltered Avg. % N/A 72.37% N/A
Gain from Upside
Breakout
Filtered Avg. % N/A 72.37% N/A
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % N/A 35.25% N/A
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings (omitted)

Broadening Tops and Bottoms (Symmetrical
Broadening Wedges)

Figure 7.30 DCR/BTC, 1D, 2017/18, Bittrex (tradingview

chart)
Notice the two opportunities to long this broadening bottom:
first at the trend break of the retracement (lower x) and
again at the breakout of the level that last touched the
resistance line (higher x).
Broadening tops and bottoms are a symmetrical broadening
wedge that frequently signals reversal. Traders may also call
them inverted or inverse symmetrical triangles or
megaphone tops and bottoms. Rather than support or
resistance lines creating a fan that points upward or
downward, broadening tops and bottoms are formed when
the wedge fans outward symmetrically. Often, they come
with a retrace (from the top) or failed rally (from the bottom)
into the wedge before the ultimate breakout or breakdown.
Traders can enter at the breakout/breakdown of the
support/resistance, or, if a retracement exists, when the
price breaches the level where the trend line was last
touched. Additionally, like in Figure 7.30 above, if the
retracement has a clear trend line, then a long from the
trend line break with a stop-loss below the retrace low is
possible (or vice versa for a short). In my study, I noted
several occasions where broadening tops or bottoms failed
and played out like a continuation pattern.

Table 7.17
Performance Statistics of Broadening Tops
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined N/A 2 N/A
Patterns
Avg. % Decline N/A -43% N/A

Summary of the Findings (omitted)

Table 7.18
Performance Statistics of Broadening Bottoms
USD(T) BTC Traded Combined
Traded Pairs Pairs Avgs.
# of Examined N/A 3 N/A
Patterns
Unfiltered Avg. % N/A 169.83% N/A
Gain from Upside
Breakout
Filtered Avg. % N/A 91.25% N/A
Gain from Upside
Breakout
(Excluding
Outliers Over
400%)
Filtered Avg. % N/A 91.25% N/A
Gain from Upside
Breakout
(Excluding
Gainers Over
100%)

Summary of the Findings (omitted)

Evolving Charts (Failed Patterns, Changing Shapes, &
Reading a Chart Fluidly)
The importance of waiting for clear and evolved patterns
cannot be overstated. Rushing into a trade because you are
over eager is one of the easiest ways to lose money. If you
need to strongly justify why a chart pattern is what you say
it is, it may mean it’s not a very clear pattern. Similarly,
calling and entering a pattern before it’s formed because
that’s what you want to happen is equally troublesome.
However, even if a pattern does not meet its most rigid
definition but looks pretty darn close, it may still behave in a
similar manner. Keep in mind when examining, say, a
triangular consolidation, you are just observing a tightening
range of price action. The breakout simply shows a
departure from the spring-wound lull period. So, in some
instances whether the pattern is perfectly defined may not
matter. Still, as a general rule, I do not take a trade unless
the pattern is screaming at me how obvious its behavioral
disposition is and that I’d be a fool not to take it.
Additionally, do not let your bias on how you think
something is going to play out blind you from when the
price action is not conforming to your theory. In other words,
read a chart in a dynamic manner where you are willing to
be wrong, to change your opinion, and to act on changing
opinions. Even if a pattern dominantly plays out in one
direction, the minority actor still exists.
Patterns frequently complete and quickly evolve into
different forms. It’s your job as a trader to keep up with the
evolution of price action. A bearish pennant may break
down but then consolidate into a bullish triangle as time
goes by. A continuation one day may begin to form a
reversal the next. Finally, the patterns described in this book
are only a select few and do not encompass all existing and
commonly recognized patterns. These are just some core
patterns every trader should know. So, I urge traders to
further research and incorporate patterns as they see fit!
Chart Pattern Takeaways:
1. Chart patterns are repeatedly observable patterns
found in all markets, which allow traders to predict
future movements of price action with reasonable
success.
2. Continuation patterns suggest a trend continuation
bias but can break either way.
3. Performance statistics help traders understand
pattern behavior, but no pattern is guaranteed to
behave the same way.
4. Areas where pattern performance differs between BTC
and USD(T) pairs may offer traders particularly
valuable insights.
5. Patterns are dynamic and evolving and should be read
as such.
 CHAPTER 8:
OSCILLATORS AND
MOMENTUM GAUGES

An oscillator is a technical tool that travels concurrently with

the general price action of an asset showing some
corresponding data or data relationship. Oscillators are
displayed as a line that travels (oscillates) between two
values. Often, oscillators try to show momentum, market
health or condition, buy or sell points, or other information
useful to a trader. Over the years, traders have created
dozens of oscillators measuring all sorts of data and data
trends. Some of the most popular oscillators include, RSI,
MACD, and Stochastic RSI. For this trading strategy, I only
focus on the RSI.
Relative Strength Index (RSI)

Figure 8.1 The RSI traveling below the price action section
of a chart. (tradingview excerpt)
For my trading strategy, no oscillator is more useful than the
Relative Strength Index or “RSI,” which was developed and
published by J. Welles Wilder in his 1978 book, New
Concepts in Technical Trading Systems . [xviii] In sum, the RSI
is a momentum indicator that measures strength of buying
and selling by calculating average gains and losses relative
to each other over an examined period of time (usually 14
periods). The RSI is displayed as a line that travels between
0 and 100 and is usually placed below the price action
portion of the chart. The RSI gives useful readings on price
action and offers an outlook on whether conditions are
bearish, bullish, oversold, or overbought. The most useful
aspect of the RSI for many traders is identifying divergences
between the highs and lows of the oscillator and those of an
asset’s price. An identified divergence often predicts trend
changes or continuations. This section briefly focuses on the
basics of reading the RSI and dedicates several subsections
to divergences.
When the RSI is under 50, it’s in bear territory. Conversely,
an RSI over 50 marks bull territory. When the RSI is above
70, the asset is considered overbought at that time, while
an RSI under 30 is oversold. Importantly, overbought and
oversold conditions can remain for long periods of time
while an asset’s price continues with the trend during strong
bull or bear cycles. Some traders use the RSI as a buy or sell
indicator based on when it reaches the overbought or
oversold levels. The difficulty with gauging the RSI bottom
or top is you don’t know it until after it passes, and the RSI
may range in oversold or overbought territory for a while.
Thus, many traders prefer to make an RSI-based entry when
it travels back into normal range from the overbought or
oversold level (into the purple range from the white). Still,
that entry may be poorly timed if a price divergence is
forming. I tend to keep these levels in mind and the overall
RSI disposition is often helpful when combined with other
aspects of technical analysis, but I rarely enter a position
simply because the RSI is overextended.
Divergences
By far, the most important indicator for my trading strategy
is recognizing and understanding divergences that occur
between a crypto’s price and a momentum oscillator.
Identifying a divergence can assist with predicting trend
changes and continuations. I like to think of divergences as
supporting evidence, which almost always coincide with
other aspects of technical analysis. In other words, they are
particularly useful when used in conjunction with other
techniques like candlesticks, chart patterns, and trend lines
or channels.
A divergence occurs when an asset’s highs or lows conflict
or diverge from the corresponding highs or lows on the
oscillator. There are four types of divergences. Two are
bullish: bullish divergence and hidden bullish divergence.
Two are bearish: bearish divergence and hidden bearish
divergence. Importantly, divergences can also be identified
and interpreted similarly with other oscillators like the Stoch
RSI or MACD but those are not a focus of this handbook.
Divergences are so important and so frequently used in this
trading strategy, it’s important to commit them to memory
as soon as possible. Divergences are useful on all time
frames whether you are trading a scalp on five-minute
candles or a large trend shift on daily candles. However, as
with all methods in this strategy, I prefer using them on
larger time frames like 1D and 4H. This section teaches the
types of divergences and how to recognize them before
giving examples of where divergences played out as
expected. Finally, this section describes several instances
where traders should be cautious using divergences and
highlights examples of divergences that did not pan out as
expected.
Bullish Divergences
The bullish divergence is a trader’s best friend. It’s a
welcome sign when markets go south and often indicates a
positive reversal. A bullish divergence occurs in a downtrend
when the price of an asset prints a lower low(s), but
the oscillator displays higher low(s). It’s easy to
recognize on any chart and it’s a proven favorite for me
when trading Bitcoin or other cryptos. Bullish divergences
are most valuable in my opinion when they occur after a
protracted downtrend and appear on large frame charts (4H,
1D, or even 1W).
Hidden Bullish Divergences
The hidden bullish divergence is a useful indicator for
determining whether to keep playing a chart that is already
engaged in a bullish move. In other words, it’s an indicator
of the underlying strength of a bullish trend. A hidden bullish
divergence occurs when an asset’s price makes a higher
low(s), but the oscillator makes a lower low(s) .
Generally speaking, a hidden bullish divergence signals that
buyers continue to dominate sellers and a continuation in
the immediate future is likely.
Bearish Divergences
A bearish divergence is the bane of the bull, but it’s equally
as useful as a bullish divergence. This divergence is the
counterpart to the bullish divergence and shows a bullish
trend losing momentum. A bearish divergence is easily
identified when the price of an asset makes a higher
high(s), but the oscillator makes a lower high(s).
Bearish divergences can signal a strong sell signal and often
appear at the end of bull trends marking a complete
reversal. A bearish divergence may also precede a
significant dip during a bull trend or a local top on a bear
trend bounce and provide a short-term trade opportunity.
Hidden Bearish Divergences
As you may guess, the hidden bearish divergence is
indicative of the strength of an underlying bearish trend.
Hidden bearish divergences show the strength of sellers out
pacing buyers and the immediate future of the trend is likely
to continue down. A hidden bearish divergence is identified
when the price makes a lower high(s), but the
oscillator makes a higher high(s).
 Weighing Strength of Divergences
Strength of divergences should be considered. As a general
rule, the more noticeable the divergence, the greater its
significance. Noticeability refers to the steepness of a line’s
slope, divergence length, and whether it exists on multiple
time frames. A flatter line on the oscillator shows less
strength than a steep incline or decline. Divergences that
last for long periods of time with multiple peaks are more
significant than tiny blips that are hard to identify on a
chart. Finally, a divergence appearing on multiple time
frames (i.e. 4H, 1D, and 1W) is stronger than one that exists
in a single time frame.
With these considerations in mind, a slight divergence is still
a divergence. Moreover, in some cases you might have a
flattening RSI on an asset that is gaining value. Even though
it might not be a bearish divergence officially because the
RSI is not going down, it’s important to understand a
flattening RSI may indeed show buyers are weakening. The
inverse of that is also true. Finally, not every reversal or
continuation will be marked by a divergence! Divergences
merely show discrepancies between price trend and relative
power of buyers or sellers over an examined period of time;
at any period, a big buyer or seller could appear and change
the equation. Thus, it’s critical for a trader to understand
what the momentum gauge means beyond the most
obvious signals. In many instances, chart reading is
nuanced and with no crystal-clear signal, and many good
trades still exist and suggest reversal or continuation even if
the RSI does not.

Divergences in Action
Example 1: Bitcoin Bullish Divergences (2019-2020)
BEFORE
Figure 8.7 XBT/USD, 1D and 1W, 2019, Bitmex
(tradingview charts)
Notice the protracted bullish divergence on the 1D chart on
top. Also, look carefully at the 1W bullish divergence that
formed when Bitcoin last touched the support line and
confirmed with a bullish hammer.
AFTER
Figure 8.8 XBT/USD, 1D, 2019/20, Bitmex (tradingview
chart)
I highlight this trade in Figures 8.7 and 8.8 because a bullish
divergence is apparent on both the daily and weekly time
frames. Weekly time frame divergences are a rare
occurrence for crypto’s brief history, and I tend to give them
a lot of deference. This provided two divergence-based long
opportunities (“1” and “2” on Figure 8.8). The first 1D bullish
divergence played out but failed after a significant rise and
trend channel fakeout, creating a longer protracted
divergence.
Regarding the second opportunity highlighted in Figure 8.8,
a more conservative trader may have waited for the trend
channel to break, while a more aggressive trader may have
longed near the trend channel support line or at the
neckline break of the inverted head and shoulders reversal
pattern within the trend channel. Finally, notice how the
breakout created a new narrower trend channel with a
flattening and slightly overbought RSI. The breakdown from
the smaller trend channel was the logical place to take profit
because it was supported by multiple technical indicators (a
trend channel support line break and flattening/overbought
RSI) suggesting a shift in the trend.
Example 2: Ethereum Hidden Bullish Divergence
(early 2019)
BEFORE

Figure 8.9 ETH/USDT, 1D, 2019, Binance (tradingview

chart)
The triangle was highlighted here rather than the price
divergence. However, a clear hidden bullish divergence is
visible on the RSI and low just before the triangle.

AFTER
Figure 8.10 E TH/USDT, 1D, 2019, Binance (tradingview
chart)
BTC/USD May 2017-August 2018

Figure 8.11 BTC/USD, 1D, 2017/18, Coinbase (tradingview

chart)
Look at how many successful trades could be made simply
by entering a position based on 1D RSI divergences.
Divergences marked nearly every major trend change
during this period. Also note, on the daily frame, Bitcoin
rarely traveled into oversold territory during these years and
was frequently overbought.
When to Be Careful With Divergences
While divergences are an extremely useful tool, like
anything in trading, they do not guarantee a move in the
market and only suggest one. Remember, a divergence only
shows a momentary discrepancy between the trend (up or
down) and the relative power of the buyers or sellers over
the examined period of time. Divergences can be
invalidated and also change. Often, the divergence itself is
not the buy or sell signal but it’s used as supporting
evidence in conjunction with another buy or sell signal like a
trend or pattern breakout. This section identifies a few of
the shortcomings new traders should be aware of when
using divergences.
Protracted Divergences
First, divergences can last a long time and price action can
slump or pump significantly while one is present. In Figure
8.12 below, overeager traders would have been punished
severely for longing at the first sight of a bull divergence.
Still, a trader who triggered a buy too early but had a tight
stop-loss could have mitigated losses or even sold on the
bounce. While ultimately this divergence did play out, in
instances like this, combining other methods of TA and risk
management is critical. Consider how a trend channel or
resistance line on top of the bottom consolidation period
may have assisted with this trade. Protracted divergences
can be great opportunities, so long as you come across
them late in formation or you wisely wait for supporting
signals.
Figure 8.12 VET/BTC, 1D, 2019, Binance (tradingview
chart)
Conflicting or Competing Divergences
Second, it’s important to note how divergences often bleed
into each other. Or in some cases, there may be concurrent
or competing divergences. For instance, bearish
divergences often turn into hidden bullish divergences and
vice versa. When confronted with conflicting divergences,
it’s a challenge to guess how they will resolve. In Figure 8.13
below, competing divergences resolved with no clear winner
or significant and immediate trade opportunity. The
resolution resulted in a consolidation within a narrow price
range.
Figure 8.13 Link/BTC, 1D, 2019, Binance (tradingview
charts)
Link exhibiting conflicting bearish and hidden bullish
divergences resulting in a stalemate and no significant trade
opportunity.
Competing Divergence Risk Analysis
When examining competing divergences, I weigh three
things: 1) the order in which they appear, favoring the most
recent divergence as the one in play; 2) the size of the
divergence, giving the larger one or the one most apparent
on multiple time frames more weight (see the previous
section on weighing divergences); and 3) the general
context of the chart structure and other elements of TA. The
analysis will depend on the totality of the circumstances for
each trade. Keep in mind, conflicting divergences show that
buyers and sellers are battling for control of the market. A
competing or conflicting divergence, if it’s a decisive factor,
may be a cautionary note singing uncertainty about price
behavior in the near future. Consequently, it may invalidate
the reason why you want the trade in the first place: to act
on a strong inclination that the market will behave a certain
way imminently .
 Unsolidified Divergences
Third, it’s important to let a divergence set. Often times I
find myself looking at a chart with a potential divergence
forming but not solidified. All too often, these divergences
never end up manifesting and entering early may result in a
loss. At a minimum, I consider a divergence to be set when
the low or high on the oscillator has a bent “v” or “ ^ ”
shape coinciding with at least one completed candlestick. I
often wait for another consecutive candle or two to support
the trend movement the divergence suggests.
Complimentary candlestick formations are useful to help
affirm a divergence. For instance, a bullish hammer where
the RSI paints a low point.
Divergence Takeaways:
1. RSI measures momentum and shows overbought and
oversold conditions (above 70 and below 30,
respectively).
2. RSI divergences help predict trend reversals and
continuations and should be construed as supporting
evidence in conjunction with other aspects of
technical analysis.
3. Divergences are particularly useful on larger time
frames.
4. The more noticeable the divergence, the greater its
significance.
5. Traders should be mindful of protracted, conflicting,
and unsolidified divergences.
 CHAPTER 9:
MOVING AVERAGES

Figure 9.1 Moving averages crossing each other.

(tradingview excerpt)
A moving average is a technical indicator displayed as a
colored line(s) that averages price action over a select
period of time. Conceptually, the averaging of an asset’s
price action helps level out volatility and establishes a
clearer trend. Like the RSI, moving averages follow along
the price of an asset concurrently. However, unlike the RSI,
moving averages are layered directly on the primary chart.
Traders often use moving averages to determine levels of
support or resistance. For instance, a trader may predict an
asset will find support at a moving average traveling below
the current price or resistance at a moving average
traveling above it. You can set a moving average to measure
any period length under any time frame, but for this section
I am speaking in periods measured on the 1D chart. Traders
frequently use the fifty-day and two-hundred-day moving
averages (MA 50 and 200 setting on the 1D chart). My trade
strategy does not often use moving averages. However, if a
moving average signal like a “death cross” or “golden
cross” occurs, which I explain below, I may examine it as
supporting evidence of a major trend shift. Despite not
using moving averages regularly, I describe them briefly
here because they are a popular and useful tool that traders
should be aware of.
The Death Cross and Golden Cross
Moving average crosses are a popular signal for major trend
changes. A “death cross” occurs when an asset’s short-term
moving average crosses below its long-term moving
average. The death cross most commonly refers to the fifty-
day moving average crossing below the two-hundred-day
moving average and signals a bull trend switching to a bear
trend. Conversely, a “golden cross” occurs when an asset’s
short-term moving average crosses above its long-term
moving average. The golden cross most commonly refers to
the fifty-day moving average crossing above the two-
hundred-day moving average and signals a switch from a
bear trend to bull. While these crosses are widely observed
on the one-day time frame, a low-frame trader may use
lower time frames and shorter period lengths to trade
intraday movements.
Some traders swear by the cross signals; however, to date
in the crypto markets, particularly with Bitcoin, death
crosses and golden crosses have yielded mixed results.
Moving average crosses are lagging indicators because it
takes time following a trend reversal for the averaged price
to turn. In other words, a major trend change is often
already underway by the time they appear. Relatedly, on
some occasions, the cross signal will occur but after the
asset’s value has already taken a turn back in the other
direction (see Figure 9.2).

Figure 9.2 (tradingview chart)

Figure 9.2 highlights all recent Bitcoin death crosses (red x)
and golden crosses (green x) using the fifty-day and two-
hundred-day moving averages. The gold line is the 200MA
and the blue line is the 50MA. Let’s consider how each of
these crosses would have played out as an entry. The first
(death cross) occurred roughly three months from the 2017
peak but captured the overall remaining two-thirds of the
downtrend. However, if you entered short right at the cross,
you would have suffered a rough month where the price
bounced back sharply. The second (golden cross) marked a
nice entry into the 2019 bull trend. It wasn’t the bottom but
between the entry at around $5,000 and top at $14,000 who
could complain. The third (death cross) occurred on a
bounce but midway down a bearish trend at around the
$9,000 level. This would have been a decent entry for a
swing short but the trend reversed pretty quickly before the
next cross. The fourth (golden cross) was a flop. An entry
here that was not abandoned swiftly would have resulted in
catastrophic losses. The fifth (death cross) appeared after
the huge drop from $10,000 to $3,000 at around $7,000.
However, it was short-lived and entering short here would
have landed you midway through a sharp recovery. Ouch.
Finally, the sixth (golden cross) suggests a move upward.
However, if you look at the previous crosses occurring so
close together, the suggestion is hardly more than
indecision in the market. Time will tell whether this cross is
the one that makes it out of the chop.
To conclude, the utility of moving averages is appreciated by
many traders. I find the cross signals to be useful in that
they confirm an existing trend switch through a lagging
indicator. The utility for a position trader is particularly
apparent, and I have also seen numerous successful traders
use the indicator for short time frames and trades. As
always, whether you decide to use this indicator is a matter
or preference.
 Bringing it All Together
You may be asking yourself, how does this all fit together?
Before you are various techniques and tools of technical
analysis. But, how do you know when to apply them and
what to apply? Undoubtedly, this is a lot of new information
to take in and commit to memory. The answer is not always
so black and white. Successful trades may encompass one
or several of the techniques mentioned above. Generally, I
look for trades illuminating multiple indicators pointing the
same direction. For instance, chart pattern breaks supported
by RSI divergences or candlestick reversal formations
aligned with trend channels or trend lines (i.e. a gravestone
doji confirmed right at a resistance line to enter short).
Don’t worry if you’re confused so far or if you feel like you’ll
never memorize all of these elements. Like anything,
practice makes perfect. You’ll get there. Chapter 10 of Part
III is specifically designed to further guide you through the
application of technical analysis.

III. TRADE STRATEGIES

AND THEORY
The final part of the handbook is dedicated to strategies and
considerations that are essential to becoming a successful
trader. In the first part of the handbook you learned the
procedural steps to trading, the second part taught you the
technical skills required to trade, and this part will provide
you with the strategies and theory required to apply those
techniques successfully. Part III first explains proper risk
management, offers a strategy to assess trend tops and
bottoms, and introduces traders to the evidence-based
trading approach with a start-to-finish example. After, I
examine different types of crypto markets and market
conditions, explore the impact of legacy markets on crypto,
and explain fundamental analysis and long-term trade
strategies. Finally, I discuss dealing with losing, how to avoid
gamblers’ mentality, and offer other useful insights catered
toward crypto traders.
 CHAPTER 10:
ESSENTIAL TRADE STRATEGIES

Applying Risk Management

Risk management is the cornerstone of profitable trading.
Every trader is going to be wrong frequently and profits are
made by mitigating losses and maximizing winners, which is
easier said than done. Through proper risk management:
sizing; regularly using stop-losses; executing trades with a
disciplined, objective strategy; and being exchange
conscious, a trader can protect profits and hard-earned
capital.
Size your position appropriately. As a general rule of thumb,
you should never risk more than 2-3% of your total capital in
a single trade. Every new trader will learn, and every
experienced trader has learned, letting losing trades
continue in the hope the position will reverse back in your
favor can result in quick and ruinous losses. If a trade, and
the possibility of it losing, is keeping you up at night that’s
perhaps a sign you are over-exposed.
Always have a stop-loss in place and have your entry and
exit planned before you enter the trade. As a new trader,
you will quickly realize the difference between saying “Oh,
that’s a head and shoulders reversal, I’d short that,” and
actually taking that position. It’s much easier to appear
objective when your money is not on the line. Following a
rigid stop-loss strategy and practicing discipline with
execution can save you from your emotional self, which is
generally the self that loses the most money. Regarding
stop-loss placement, refer back to the technical analysis
section of the handbook where I discuss stop-loss strategy
further.
Maintain objectivity. As noted on several occasions in this
handbook, having an openness to being wrong and the will
to act on it is vital to a trader. Don’t let preconceived
notions trap you in a bad trade if they turn out to be false!
Paradoxically, profitability is often simply achieved through
objective execution, however, the equation gets
complicated when emotion is involved and that frequently
comes as soon as money is on the table. Therefore,
adopting strict rules, which I propose in the following
sections, is essential to maintaining objectivity.
Moreover, if you are margin trading – don’t over leverage!
As tempting as it may be to slam the 50x or 100x leverage
button on a long because what could possibly go wrong, you
are simply gambling and not trading. I rarely exceed 2-5x
leverage. There have been some exceptions, but in 95% of
situations leveraging above 5x is unnecessary and not in
line with my best practice strategy.
Finally, be mindful of where you are trading. If you are
trading on a small cap exchange with low liquidity,
understand your order could get skipped and may result in
losses or missed positions. If you are trading on Bitmex or a
high leverage platform, be mindful that these platforms
often suffer from slippage and over leveraged positions
regularly get liquidated. If you are concerned your position
may be subject to an unacceptable loss due to slippage or
illiquidity, it may be a sign you are over leveraged or are not
on a more reputable exchange.
Calling Tops and Bottoms
Calling an exact top or exact bottom of a trend is an elusive
task. Fortunately, it’s one a trader does not need to master.
Rather, a goal for a trader should be to enter a trend change
at the earliest time, which is also supported by a reasonable
and substantial chance of success. Remember, the objective
of a trader is to act on a strong inclination that the market
will behave a certain way imminently . This evidence-based
approach requires a trader be able to identify indicators with
supporting corroboration to prove their mere theory of trend
reversal.
Liken calling a trend reversal to a detective investigating a
murder: a woman is found dead from a knife wound and foul
play is suspected. The detective thinks her husband who
has a history of domestic abuse may be involved, but at the
moment it’s just a theory. In law, before someone is arrested
probable cause must be established, which requires
evidence beyond a mere suspicion. It’s the detective’s job to
find the weapon, interrogate the suspect, question
witnesses, and look at conflicting evidence indicating the
man’s innocence before arresting him on probable cause.
And, even then, the detective still may have the wrong guy.
The same can be applied to trend and pattern analysis. Did
the bears just murder the bull and is the trend about to
reverse? Ask yourself, do you have probable cause? Is there
a confirmed reversal pattern? What time frames does it
appear on? Does the volume support the reversal? How
heavily does the conflicting divergence on the RSI weigh
against the reversal? What other indicators show strength or
weakness in the reversal? Only after all considerations
establish a reasonable and substantial chance of success
supporting your trade theory should a trader consider the
reversal.
While it may feel good to nail the top of a wick before a
trend reversal, it’s likely not a sustainable way to enter a
trade. If a trend change or reversal pattern is truly the top
or the bottom, a valuable trade will not depend on nailing
the exact peak. Ironically, the best time to sell is often when
others are piling in, and the best time to buy is often when
people are panic selling. The markets like to punish the
collective psyche. Therefore, it’s essential to look at the
technical disposition and not get caught up in the hype.
Adopting Hard Evidence-Based Rules BEFORE
Entering a Trade
Every trader should have a list of their own hard rules or
guidelines that must be met before entering a trade. Thus, I
propose eight rules and evidence-based conditions that
must be satisfied before entering any trade: 1) the trade
must have a theory; 2) the trade must have a predefined
entry and exit; 3) candle formations, chart patterns, trends,
or other indicators must be sufficiently developed on large
enough time frames; 4) the greater market conditions are
assessed; 5) supporting indicators are identified; 6)
conflicting indicators are investigated; 7) a judgment is
made between the weight of the supporting indicators
against the conflicting indicators; and 8) a profit plan is in
place and the total acceptable loss is established in case the
trade sours. Only after you fulfill these rules and conditions
honestly should you enter your trade.
An easy way of satisfying these trade conditions is by going
through each one in question form: 1) what is the trade
theory; 2) does the trade have a predefined entry and exit;
3) is the pattern or trend sufficiently developed on a large
enough time frame(s); 4) what are the market conditions; 5)
what supporting indicators exist; 6) what conflicting
indicators exist; 7) do the supporting indicators outweigh
the negative ones; and 8) what am I willing to risk and
where will I take profit?
What is the Trade Theory?
Every trade should have a theory or hypothesis grounded by
technical and strategic logic. For example, if you are trading
a trend channel, your theory may be the asset has been
ranging within a small controlled scope for many months;
thus, a departure and break from this tight range will likely
mean a sustained move in that direction. It’s important to
spell out your theory because it keeps traders from entering
positions simply based on “chart will go up” or “chart will go
down.” Like the murder example, trades should be equated
to a suspect that you are willing to either book or release
based on all of the evidence and incorporating new
evidence as it becomes apparent.
Does the Trade Have a Predefined Entry and Exit?
All trades should have a predefined entry and exit. If you
enter a trade without a plan on when to get out, you run the
risk of panic when the trade goes sour and further
increasing losses. These predefined markers should be
followed with a strict protocol and be executed objectively
without emotion. When your exit or stop gets hits, the trade
is over. I caution: DO NOT seek to re-enter the same trade
again or you risk succumbing to gamblers’ mentality. There
will always be another trade. When marking an exit,
consider what price shift would invalidate your trade theory.
Is the Pattern or Trend Sufficiently Developed?
All patterns and trends should be sufficiently developed on
larger time frames before entering a trade. What type of
pattern or trend are you going to trade and how long has it
been developing? If it’s a pattern, does it exist on multiple
time frames (i.e. 2H, 4H, 1D)? How many touches are on the
support and resistance lines? Is the pattern fully developed?
Does the pattern constitute a continuation generally or a
reversal? If you are trading a trend line, how many times
has the price touched the line? Is it a well-defined trend line
over a long period of time or are you rushing into a weak
trend line that only delineates a small bit of price action?
What are the Market Conditions?
Know the market conditions you are trading in. If it’s a bear
market, understand the burden is on the asset not to paint
lower lows and lower highs on the larger time frames and
greater chart construction. If it’s a bull market, the opposite
is true. Consider how long the market has been performing
in a bullish or bearish manner and why. Ask yourself, are
there fundamental reasons why the market is trading in a
downtrend or uptrend and will they affect this trade? Think
about what macro-economic events might help sway a
market from one trend to another. Could these conditions
change quickly or are they likely not going to change
anytime soon. While this handbook focuses on the technical
analysis, such analysis is not mutually exclusive from the
fundamentals and often they coincide. Fundamental
analysis is a subject addressed later in Chapter 12 of Part III.
What are the Supporting Indicators?
All supporting technical indicators or lack thereof should be
considered. Going back to the example of a policeman
investigating a murder, all corroborating evidence should be
noted and any deficiency in finding corroborating evidence
should also be recognized. What candlesticks support your
theory? Does the volume or lack thereof support it? Is the
RSI in bull or bear territory? Are there positive divergences?
The strength of a trade is best measured when
understanding the sum of all the parts.
What are the Conflicting Indicators?
Similarly, all conflicting or negative technical indicators
must be identified and considered. It will only hurt your
wallet if you choose to ignore powerful conflicting indicators.
Are there conflicting candlestick formations? What about
divergences moving contrary to your trade theory? Is there
a lack of volume? Could there be two potential competing
chart patterns in play? Run through all possible negative
technical indicators objectively.
 Do the Supporting Indicators Outweigh the
Conflicting Indicators?
You are the judge and jury of every trade. The scales of
financial success are in your hands. Combine the answers to
the past two questions and weigh the positive and negative
indicators. If there is even a close competition, I’d caution
there’s probably a better trade on a later day. What you are
really looking for, again, is to act on a strong inclination that
the market will behave a certain way imminently. A trade
should look so obvious you would be a fool not to take it.
Thus, you limit yourself to only the most promising setups.
What am I Willing to Risk & Where Will I Take Profit?
Finally, how much capital are you willing to risk? This answer
should certainly be within the range of your general trade
strategy (many traders limit losses on a single trade to 2-3%
or less if the trader has a large cash reserve). Your
predefined entry and exit should be premeasured to account
for the loss you are willing to accept. Similarly, a trader
should have some idea of where they will take profit and
how. Do you have a specific target or are you going to wait
patiently to watch what develops? Will you target multiple
levels? Will you set a stop-limit or use a trailing stop? What
are your plans to let the trade ride if it goes well? On many
occasions, you may not have a strict plan for taking profit
because it may require observing chart development.
However, you should always have a stop-loss and some
realistic idea of how you’d like the successful trade to go.
Trade Example and Rule Analysis in Practice (Short-
Frame)
Figure 10.1 (tradingview chart)
The evidence-based trade approach in practice on the 4H
chart. A pennant before breakout.
What is the Trade Theory?
In this instance, Bitcoin has made two consecutive bullish
moves and has consolidated in a pennant shaped like a
symmetrical triangle. My trade theory is an upward break of
the pennant would lead to another bullish move where hard
resistance would be met around $9,500 (the trend
resistance line spanning 10 months if you were to zoom
out). If that resistance is broken, a stronger move upward
seems probable.
What are the Entry and Exit?
A break above the pennant’s resistance line at $9,001
marks the entry and a break below the support line at
$8,500 marks the stop-loss.
Is the Pattern or Trend Sufficiently Developed?
The pattern is sufficiently developed on the 2-4H time
frames. Three touches on the resistance line and two on the
support define the pennant. Notably, this is not a macro
level trade, but one based on price action over the past few
weeks used as a process example for the handbook.
What are the Market Conditions?
The market conditions are a mixed bag depending on the
time frames examined. For the past month Bitcoin has
staged a strong recovery after falling from $10,500 to
$3,500. On the macro scale, Bitcoin failed to push a higher
high on its ten-month downtrend; however, on the shorter
time frames, Bitcoin is staging a strong bullish recovery. On
the fundamental side, the next Bitcoin halving is
approaching, and media is widely hyping this as a positive
event.
What are the Supporting Indicators?
A hidden bullish divergence on the RSI supports the theory
of trend continuation. Moreover, according to my chart
pattern analysis, a bull-biased pennant occurring in a
USD(T) paired market signals bullish trend continuation
71.84% of the time. Notably, this pennant is clearly visible
on the 4H frame and is small but also visible on the 1D, so I
am comfortable using this statistic for this example. Finally,
sell volume has also been declining since the local top
indicating buyers maintain control.
What are the Conflicting Indicators?
RSI is drooping into bearish territory and was recently very
overbought. Bitcoin is not far from long-time trend
resistance around $9,500. Bitcoin has also staged a
shocking recovery since falling ~70%. This would be a third
consecutive bullish advance since the high 6,000s, and I am
not sure as we approach resistance if the bulls will run out of
steam. I also know from my performance analysis that bull-
biased pennants, despite their high continuation frequency,
often appear as local tops after several bullish advances.
 Do the Supporting Indicators Outweigh the
Conflicting Ones?
The bullish continuation pattern coupled with a clear hidden
bullish divergence on the RSI and declining sell volume
outweigh conflicting indicators, at least until $9,500. The
71.84% odds of a bull-biased pennant breaking upward are
strongly in my favor. The RSI moving into bear territory is
outweighed by the hidden bullish divergence. Also, the RSI
resetting from very overbought conditions should be
weighed positively in light of the divergence.
What am I Willing to Risk?
I am willing to risk the spread between the converging
support and resistance lines of the pennant (roughly 5%). I
will buy .1 bitcoin at $9,001+ for ~$900 for this example
trade. Selling at $8,499 for a loss of $50 if the trade fakes
out and reverses below the support line.
Target
Ideally, I see this going to $9,500 where I will re-assess. If
$9,500 breaks I will watch for a powerful move upward and
sell when technical indicators signal reversal.
Trade Development
Figure 10.2 (tradingview chart)
Bitcoin stopped right at trend resistance. No overarching
new bearish indicators are present and buy volume is
increasing, so I will wait for consolidation and a second
attempt. Stop-loss moved to entry.

Figure 10.3 (tradingview chart)

Bitcoin broke the resistance line and accelerated upward.
Figure 10.4 (tradingview chart)
Bitcoin made it to $10,000, but, shortly after, a large RSI
bearish divergence on the 4H chart appeared spanning from
the top of the pennant to the new high. This seems like a
good place to exit the trade as a reversal seems imminent.

The Result
Entry : $9,005
Exit: $9,900
STOP-LOSS : $8,499
Win? Yes, the trade was a success. A sell was placed at
$9,900 where the RSI divergence on the 4H chart confirmed,
which totaled a ~10% gain (no leverage). Not bad for a
short-term example trade.
 CHAPTER 11:
TRADING ALTCOINS AND
DIFFERENT MARKET CONDITIONS

Trading Altcoins
Crypto offers speculators a wide array of coins and tokens.
Any crypto that is not Bitcoin is considered an alternative
coin or “altcoin.” Yes, in this instance, the term includes
both coins and tokens! Today, more than 8,000 altcoins are
in circulation. Trading them frequently offers greater
volatility than Bitcoin and thus presents traders with an
opportunity for greater profit. However, this same volatility
also makes trading altcoins riskier as the volatility cuts both
ways. If caught on the wrong end, an irresponsible trader
may be punished. The next several sections are all about
trading altcoins. To do so successfully, traders MUST
understand Bitcoin’s impact on altcoins and Bitcoin
dominance; know the significance and difference between
trading the small, medium, and large market cap altcoins;
and recognize what it means for profits when you trade an
altcoin on a Bitcoin pair vs. a fiat pair. Additionally, following
the discussion on altcoins, I discuss the broader impact of
the stock markets on Bitcoin, and, consequently, altcoins.
Bitcoin’s Impact on Trading Altcoins
The greatest consideration any trader should have when
contemplating whether to trade any altcoin whether small,
medium, or large cap should be Bitcoin’s current effect on
the altcoin market. As a trader with half a decade of
experience in the crypto markets, I’ve noticed several
distinct patterns that emerge regarding Bitcoin’s price
movement and its impact on the price movement of the
altcoin market. There are four distinct patterns: BTC Up, Alts
Up; BTC Up, Alts Down; BTC Down, Alts Down; Bitcoin Down,
Alts Up. Generally speaking, Bitcoin’s impact on the
altcoin market is enormous. As a rule of thumb,
particularly if I am unsure what correlation is active, I
will not buy or long an altcoin if Bitcoin does not also
look bullish or stable . Additionally, if Bitcoin looks like it
will make a power move, I may hold off on altcoins and look
to Bitcoin only. For a majority of price action over the past
three years, Bitcoin has been the leader and determining
factor setting pace.
Bitcoin Up, Alts Up
This correlation means when Bitcoin’s price rises so do the
altcoins. This is extremely common. Historically, if you look
back at the past three years when the altcoin market and
Bitcoin market were booming, the largest gainer periods
occurred when both Bitcoin and altcoins rose together. This
correlation occurs when market sentiment shows
trader/investor faith in both Bitcoin and the altcoin market
at the same time.
Bitcoin Up, Alts Down
This correlation means that when the price of Bitcoin goes
up, the altcoin prices go down. This is also quite common.
Why? Because frequently when Bitcoin is going on a bullish
tear, traders ditch their altcoin holdings for Bitcoin. Whether
because of FOMO (“fear of missing out”) or a belief they will
be able to better profit or repurchase altcoins at a lower
price, on these occasions, traders have successfully grown
crypto or cash holdings by playing this scenario
strategically.
Bitcoin Down, Alts Down
Painfully common, this correlation means when Bitcoin’s
price goes down altcoin prices also go down. Bitcoin is the
big granddaddy of crypto, and all too often when he suffers,
everything else does as well. This scenario is exactly what
makes being an altcoin HODLer so painful sometimes.
Bitcoin Down, Alts Up
This is the goldilocks of the correlations for altcoin HODLers
and is by far the rarest. In this correlation, when Bitcoin
goes down altcoins go up. Why? I’d speculate this occurs
when the underlying belief regarding why Bitcoin is going
down is considered by market participants to be
insignificant. Thus, traders look to increase profit or increase
Bitcoin holdings by pumping their Bitcoin in the altcoin
market with the belief that the depreciation in Bitcoin’s
value is only temporary.
Bitcoin Dominance and “Alt Season”
Bitcoin dominance means the percentage of total market
capitalization Bitcoin has relative to the entire crypto market
capitalization. Interestingly, Bitcoin dominance can be
charted, and traders often treat the chart and its patterns,
trends, and structure the same as they would with a regular
crypto asset. Rather than price on the Y axis, the dominance
chart has Bitcoin’s percentage of market share (between 0
to 100). When Bitcoin is performing very well, it tends to
dominate the market capitalization of the whole space.
Exemplified in figure 11.1 below is a chart showcasing
Bitcoin dominance. Notice the general trend structures, the
RSI divergences signaling trend changes, and how in early
2018 Bitcoin’s dominance crashed while the altcoins’
market share soared.
Figure 11.1 RSI Divergences (tradingview chart)
“Alt season,” a term coined by traders/HODLers, is a trading
period where the altcoin market is on a powerful bullish run.
Generally, alt seasons are marked by a noticeable decline in
Bitcoin dominance as the altcoins take market share from
Bitcoin. Two notable examples being late Spring and
Summer of 2017 and December 2017-January 2018. In
2017, the altcoin market exploded from a mere 700 million
dollars to 400 billion. While 2017 was a period of massive
growth, there were many months of retracement and
consolidation for altcoins (some retracing as much as 80%
against Bitcoin). Thus, it should be distinguished as being
two alt seasons rather than one. As highlighted below, these
alt seasons were marked by an obvious decline in Bitcoin
dominance.
Alt seasons may begin under different circumstances. In
early 2017, it began with an overall bullish momentum for
all cryptos including Bitcoin. The majors like Bitcoin and
Ethereum led the pack. Late 2016 was a low period in
crypto, and Ethereum which had reached nearly $30 months
earlier was down to just $5. Slowly, everything appeared to
rise from the ashes together, and, by May 2017, a price
exploration began as Bitcoin reclaimed its all-time high.
Altcoins quickly outpaced Bitcoin and melted its dominance
into the summer. Some cryptos logged 1,000-20,000%+
gains. In other words, life-changing gains.
The late 2017 alt season and bubble peak commenced
differently. While many altcoins shed a significant portion of
new-found value between late summer and fall, Bitcoin
continued a steadier bullish trajectory. Bitcoin dominance
increased from 50% back to 70% as altcoiners abandoned
their coin to capitalize on the Bitcoin euphoria. However,
when Bitcoin started to show signs of weakening and
altcoin/BTC pairs were heavily dumped and oversold by
weak hands, the Bitcoin piled back into the altcoin market.
Interestingly, the 2017 high for Bitcoin peaked in mid-
December, which is where the altcoin run truly began and
moved quickly for another month.
Figure 11.2 Tickers: BTC.D & TOTAL2 (tradingview charts)
The chart on top shows Bitcoin’s dominance melting away
from 95% in early 2017 to just 36% by the end of 2017.
Notice the recovery of Bitcoin dominance between alt
seasons where altcoins paired against Bitcoin had a
significant retrace and Bitcoin dominance recovered from
50% back to 70%.

Correspondingly, below, the altcoin market capitalization

displays the meteoric rise of altcoins during the 2017/early
2018 alt seasons.

Unfortunately, both of these charts now show large gaps

likely because of tweaks to the data aggregation.

Performance Analysis Findings Related to Bitcoin

Dominance and Altcoins
Several interesting findings surfaced from the performance
analysis of chart patterns that shed additional light on the
relationship between Bitcoin and altcoins. First, several
patterns tended to appear dominantly in one category of
pairings over the other. Second, cryptos trading against
USD(T) tended to have a higher degree of volatility.
Unexpectedly, bear flags appeared more frequently in BTC
traded pairs than USD(T) pairs, while bull flags appeared
more frequently in USD(T) pairs (BTC pairs comprised 56%
of all sampled bear flags and only 40% of all sampled bull
flags). Relatedly, ascending triangles appeared twice as
frequently in USD(T) traded pairs. Why? I’d speculate the
direct relationship of Bitcoin on altcoins played a role here.
To elaborate, think about times where Bitcoin is going up
and altcoins are being driven down. For example, in Winter
2017. In November and December 2017, alt/BTC pairs like
Ethereum were painting bear flags while their USD(T) pairs
were painting bull flags. This happened because holders
were selling Ethereum for Bitcoin, but Bitcoin was rising
quickly and the USD value of Ethereum was still rising
despite the sell-off of the BTC pairs. Speculators continued
to pour money into Ethereum with fiat, offsetting those
selling into Bitcoin. This accounts for both an additional bear
flag in the BTC pair record and an additional bull flag in the
USD(T) record from only one crypto. Thus, it’s likely this
scenario played out similarly with other pairs and in other in
times when BTC and USD(T) values were divergent. In other
instances, if an alt/BTC pair was trading mostly flat but
Bitcoin was rising against the dollar, alt/USD(T) pairs would
share similar pattern formation as BTC/USD(T). So, this may
also account for instances where more bull flags appear in
USD(T) related pairs.
Relatedly, USD(T) pairs across the board exhibited higher
performance volatility, both going up and down for nearly
every pattern examined in the chart pattern study. Why?
Think about it: during a period where Bitcoin is going down
against the dollar and alt/BTC pairs are also going down, the
losses are going to be compounded in the USD(T) pairings.
Conversely, in periods where altcoins are rising against BTC
while Bitcoin is rising against the dollar, the gains are also
going to be compounding but upward. So, if an alt/BTC pair
has a bull flag at the same time as Bitcoin is trending
upward, the gains are amplified and the altcoin enjoys both
the rise against Bitcoin and Bitcoin’s rise against the dollar.
Trading Small Caps vs. Large Caps
With thousands of coins and tokens traded publicly every
day, the variance in market capitalizations (the total value
of an asset’s coins or tokens in circulation) is extreme. Some
of the major cryptos like Bitcoin or Ethereum have a market
cap in the tens of billions of dollars, while thousands of tiny
start-up companies have market caps in the hundreds of
thousands or several million-dollar range. Others, the
midcaps, have something in between ranging from the
hundreds of millions to a billion-dollar category. Overall,
trading different cap coins is a matter of preference with
many traders feeling strongly about what range (small,
medium, or large cap) they trade. Trading the different
market caps can all be profitable but may require different
approaches and might not suit all trading styles or goals.
The smaller the market cap, the less money it takes to move
the asset price up or down. For example, say a small cap
company launched an ICO with 10,000,000 tokens
circulating. Each token is currently priced at $.02 creating a
$200,000 market capitalization. Thus, at the current price of
.02/token, the entire supply could be bought for $200,000.
Assume 1,000 ICO participants hold the tokens and the
current price reflects the ICO sales price. It’s fair to say the
entire supply would not be up for sale at base price with so
many holders. Consequently, if a buyer comes in with
$20,000 to invest in the token, which would account for 10%
of the entire supply at the price of .02/token, it’s very likely
that buyer would move the value of the token up easily with
that $20,000. Conversely, say Ethereum is trading at $150
with a supply of one hundred and ten billion coins, its
market capitalization would amount to sixteen billion
dollars. If a trader comes in with $20,000 or even $200,000
it would barely make a dent in the current price – assuming
regular liquidity exists on the exchange.
Some traders enjoy trading small cap coins because they
often have large price swings due to small market
capitalization and low liquidity. It’s not uncommon to see
small cap coins move 20%, 30%, or even 100% in a single
day. But traders should note these price fluctuations swing
both ways. Overnight, profit takers can dump a small cap
coin back down to where it started or below.
Other traders may prefer only to trade the largest cap coins
with the most liquidity to fill big orders and ensure their
orders don’t get skipped. Completely understandable if you
are a margin trader or are playing with large amounts of
money. Certainly, something can also be said about
lowering risk by only playing the larger caps, as smaller cap
coins have a greater reputation for being scams and may be
subject to more scrutiny from regulators.
The application of technical analysis on large caps vs. small
caps is debatable. I have heard doubt from many traders on
the applicability of technical analysis to small caps because
of the ability for relatively small amounts of money to push
an asset out of the realm of normal price action activity.
While in some instances this is true, I think in many cases
technical analysis is applicable to small cap coins. I have
traded many small caps with similar success to large caps
using candlestick formations, chart patterns, trend lines,
and divergences.
Showcased in Figure 11.3 and Figure 11.4 below is the
COTI/BTC pair in February 2020. COTI, a small cap under
$3,000,000 USD at entry, was consolidating as a
symmetrical triangle over several weeks. Huge volume
created a stir of volatility creating a bottom from a
protracted decline. The triangle ended up busting out and
surfing the trend line for a little while before charging a
strong reversal and netting a whopping 200%+ gain. A nice
low cap swing trade with relatively clean and successful
pattern analysis. Notably, a stop-loss was placed below the
support line.

Figure 11.3 COTI/BTC, 1D, 2020, Kucoin

This chart highlights a clean small-cap symmetrical triangle
before breakout.
Figure 11.4 COTI/BTC, 1D, 2020, Kucoin
Here, COTI broke upward more than doubling against Bitcoin
in just a few weeks.
Below Figure 11.5 shows another example of a clean micro-
cap (MWAT/BTC) trade from 2018. Notice a bubble-like run-
up followed by a five-month burst and decline with lower
lows and lower highs. It’s similar to a falling wedge or a
descending trend channel but doesn’t quite fit the trend
lines. Still, trading the overall trend break resulted in a near
100% gain and 63% in a mere day.
Figure 11.5 MWAT/BTC, 1D, 2018, Kucoin
These charts show the before and after pop of a descending
and controlled deflation, which nearly resembles a falling
wedge or a descending trend channel with lower highs and
lower lows.
Trading for Bitcoin vs. Trading for Fiat
One novel nuance of crypto trading as opposed to other
markets is traders may be speculating with a goal to either
cash out into fiat currencies or others may trade with the
ambition to accumulate more Bitcoin. Keep in mind, many
altcoins are only paired with Bitcoin and only the more liquid
ones have a fiat pair. Many traders see altcoin trading as an
opportunity to grow their Bitcoin stack, and many Bitcoin
enthusiasts value Bitcoin more than fiat currencies.
This can lead to some confusion, particularly in periods
when altcoins are rising against Bitcoin but Bitcoin’s value in
dollars is going down. Some traders measure a trade’s
success as an altcoin’s percentage gain relative to Bitcoin
rather than the altcoin’s value in dollars or other fiat. This is
confusing because you may have a day when say Ethereum
rises 10% against Bitcoin, but Bitcoin falls 12%+ against the
dollar. Technically, Ethereum will also have gone down in
dollars but substantially up in Bitcoin. One trader may say
this is a great success because they made 10% more
Bitcoin, while another trader may say this is a failure
because they lost value in dollars. The inverse is true as
well. For example, Ethereum may fall 5% against Bitcoin but
Bitcoin may gain 10% against the dollar. Thus, a trader may
say “down in Bitcoin, up in dollars.”
Ultimately, it’s a matter of preference. I tend to think that
only fiat pays the bills and trade with the primary goal of
accumulating stable coins or dollars. Others disagree. The
important thing to understand is altcoin trading is done
largely against Bitcoin, and, if you want to secure profits in
fiat (if no fiat or stable coin pair exists), you may need to
execute two trades: the first to sell the altcoin for Bitcoin
and the second to sell the Bitcoin into a stable coin or fiat
currency.
The Impact of Legacy Markets on Crypto
In addition to Bitcoin’s performance and dominance
impacting the greater crypto space, traders should also be
mindful of what, if any, relationship or influence legacy
markets (i.e. major stock indexes) have on the current
crypto market. Often crypto appears to act independently,
particularly because no other market in the world has so
much consistent volatility. However, evidence supports the
argument that crypto is an asset class that performs best
under bullish conditions in the global markets. For instance,
take the epic 2017 crypto bull run, which occurred during a
steep rise in a 10-year equities bull run. I am certainly not
the first or only one to note this observation.
An easy comparison shows Bitcoin, and thus crypto, often
coincides with the S&P 500. If you take a chart comparing
Bitcoin with the S&P 500 (see Figure 11.6), you can see
most of the major Bitcoin dumps coincided with negative
volatility in the S&P 500. In other words, when the S&P 500
dipped or dumped, Bitcoin often did too and repeatedly with
greater thrust. However, this is not to say Bitcoin is always
performing concurrently with the S&P 500. In 2018, the
stock markets performed substantially better than Bitcoin
did, but both ended that year with a big dump.
Notably, since the coronavirus started impacting the legacy
markets, Bitcoin shares a striking correlation with the S&P
500 down to even the low frame charts, but, again, with
greater volatility. Many crypto-enthusiasts would like to
argue Bitcoin (and crypto), born from the folly of the 2008
financial crisis, was designed for this instance and acts
independently. However, with such a striking correlation to
the legacy markets, whether Bitcoin becomes a hedge to
the greater financial markets has yet to be proven. Still, with
governments printing seemingly unlimited amounts of
rescue cash and recession looming, perhaps 2020 will be
the year the markets truly diverge and Bitcoin becomes a
global hedge. We’ll see!

Figure 11.6 S&P 500 Futures and BTC/USD (tradingview

chart)
Notice how often a big Bitcoin (orange) crash or dip
coincided with a dump or dip in the S&P 500 (red candles).

Figure 11.7 S&P 500 Futures and BTC/USD (tradingview

chart)
This 4H chart shows a clear correlation between Bitcoin
(orange) and the S&P 500 following the initial coronavirus
dump. Bitcoin appears to follow closely while also exhibiting
greater volatility. This may be in part because margin
trading liquidations fuel greater spikes and dips in the
crypto markets, as they are far less liquid than the S&P 500.
No doubt, one of the big challenges of trading crypto is
keeping tabs on all of the moving parts and
interrelationships. Already I have discussed Bitcon’s various
impacts on the market, the interaction between USD(T) and
BTC pairs, and now the legacy market influences.
Understandably, it can make one’s head spin. Unfortunately,
no easy fix exists to detangle it all and traders simply need
to be observant of multiple factors at any given time.
 CHAPTER 12:
LONG-TERM STRATEGIES

Fundamental Analysis
You may hear traders or HODLers use the term fundamental
analysis or “FA.” Fundamental analysis means studying,
measuring, and predicting the value of an asset based on
the intrinsic or “fundamental” aspects of an asset. For
example, the cost of production, adoption of the asset,
number of users, growth of users, development of the
technology, war chest of the team, caliber of developers, or
any other metric seeking the asset’s inherent rather than
price-action-based value. To illustrate, Bitcoin requires an
enormous amount of electricity for miners to create a single
new coin. If the cost of production for a single bitcoin is
$5,000 for miners with a very low electricity price rate, then
traders or investors applying fundamental analysis may
argue the intrinsic value of a single bitcoin is not lower than
the lowest cost of production ($5,000).
Numerous crypto trading groups exist where the focus of
when to buy and sell a crypto is based on the fundamentals
rather than the technical aspects. Traders in these groups
may call themselves “gem hunters” or “fundamental
analysts.” Rather than analyzing the charts, they scrutinize
the technology, teams and developers, marketing
strategies, communities, and other aspects of the asset.
Rather than seeking a technical indicator flashing a buy
signal, these traders may simply look for any market dip as
opportunities to buy. Communications like press releases
indicating big news from the delivering team frequently
signal fundamental-based entries.
Crypto traders are often split between the two camps of
fundamental and technical analysts. The steadfast HODLers
often fall under the fundamental analyst category because
they subscribe to the belief that regardless of the market
movements in the near future, the technological
achievement and use of the crypto will drive its value to a
higher price in the future. Many traders often subscribe to
the technical analysis camp because it allows them greater
latitude to speculate on the short, medium, and long-term
price of an asset grounded by repeating market behaviors.
Still, both philosophies share significant crossover in
membership, and the more open-minded market
participants from each camp often complement each other
nicely when sharing theories on crypto asset values.
Consider the recent Bitcoin halving as an example. The
fundamental analysis camp argued Bitcoin’s value should go
up because block rewards (the amount of bitcoin mined in
each block) reduced by 50%. Thus, it became twice as
costly to produce a single bitcoin. Meanwhile the technical
analysis camp could easily recognize the preceding
appreciation of Bitcoin’s value leading to the havening
event. Moreover, the technical camp could quantify the
recent price action and offer insights into volume, trend
structure, and potential points of resistance or weakness. In
this instance, both camps could offer complimentary
material supporting a theory that Bitcoin’s value would rise
near the halving.
As highlighted, technical analysis and fundamental analysis
are not mutually exclusive and can be applied together to
create two lines of attack for speculators. I suggest all
traders consider potential fundamental influences on the
assets they trade, regardless of whether you subscribe
heavily to one belief over the other. In the same vein, if you
are a HODLer and not a trader, I suggest you consider how
technical analysis might bolster your entries and exits next
time you are looking to time the market. Avoid becoming a
HODLer who takes every unmitigated market blow when it
can be avoided.

Hedging
A hedge is a strategic trade used to counterbalance
(“hedge”) losses from a short-term reversal while a trader
holds open a position(s). For instance, in some
circumstances, a trader may wish to hedge a trade in the
opposite direction of their primary trade to secure or
maximize profit. To extrapolate hypothetically, say I bought
two spot-market bitcoins near a recent bottom at $4,000
each. Bitcoin is now trading at $7,500. I am anticipating
taking this position for several months with a target of
$15,000, but in the near term I see an immediate retrace in
price to the $5,000 area. I don’t want to sell my spot
bitcoins, which requires moving them from cold storage and
potentially losing my position. But I also don’t want to lose
my profit. So, I hedge an opposing short with a stop-loss
above the recent high and target in the low $5,000s. I can
close the trade when I see bullish indicators return. If it
turns out I was wrong to think Bitcoin would keep going to
$15,000 and it becomes clear $7,500 was the top, my
hedge position will help reduce my lost profit as Bitcoin
declines before I sell. I could even keep it open after I sell
the bitcoins and turn the hedge into a profitable primary
short.
Balancing hedge sizing will take some practice. I generally
do a low leverage counter-position at 2-5x leverage. My
hedges do not cover the full size of the entire open position
but seek to cover a large portion (30-50%). So, in the
example above, I might take $2,000 and leverage it to be
worth $5,000 (33% of my two bitcoins currently worth
$15,000) as a short, which will appreciate as Bitcoin
retraces.
Hedging is popular for long-term investors who don’t want
to trade frequently and believe in the long-term trend of the
assets they are holding. This not only mitigates losses and
maximizes profit but also provides longer-term holders with
peace of mind during protracted bear trends or in times
when a large reversal seems imminent. Still, swing or
position traders may also reap the benefits of a hedge and
also enjoy the peace of mind. It’s not uncommon to see
crypto traders hedge short against their altcoin exposure.

Averaging Down
Averaging down is a strategy where a trader or investor
buys into an asset at predetermined intervals knowing they
will not likely catch the bottom on the first try. By averaging
the entry, a trader does not need to find the exact bottom
and can average losses and turn them into gains quickly. For
example, say Bitcoin peaked last year at $10,000 and it’s
now sitting at $3,000 after many months of decline. You are
confident the bottom is near, but you aren’t quite sure
where it is. You could average your entry by purchasing first
at $3,000 and with the expectation and intention to
purchase again at $2,000 and $1,000, if it ever gets to
either of those levels. This strategy ensures you are not left
in the dust with no holding if Bitcoin has bottomed but also
anticipates you may be wrong. If you buy one bitcoin at
each level and Bitcoin bottoms at $1,900, you will have
bought two bitcoins with an average entry of $2,500 (the
mean of 2,000 and 3,000). Thus, you will start to profit when
Bitcoin trades above $2,500.
Deciding intervals and position sizing is a matter of personal
taste. When I average into a position, I generally plan on
three purchases with each larger than the last. I generally
expect my first purchase will not be the only one, so I
assume I will get more bang for my buck cheaper. Still, I
make sure my first purchase is one that I would be happy
with if I nailed the bottom. Generally, I place a bid 30-50%
lower than my first entry and my second bid 30-50% lower
than the first average down. These are not hard rules, and I
determine the best course of action based on the particular
asset and the totality of the circumstances. I never average
into a chart that is not already in a very low period.
Relatedly, investors may choose to regularly purchase an
asset to average into a position, which is called Dollar Cost
Averaging (DCA). For instance, on a bi-weekly or monthly
basis. This strategy is better tailored toward investors rather
than traders because it’s based on a time-table strategy
rather than a price action strategy. Nevertheless, traders
should be aware of it and its utility for long-term holdings.
 CHAPTER 13:
ADDITIONAL TOOLS AND INSIGHTS TO
HELP YOU MASTER YOUR CRAFT

Where and How to Practice Without Risking Money as

a Beginner
No new trader should begin trading with real money.
Period. I wouldn’t suggest anyone risk any capital trading
for at least six months from starting to learn and mastering
the core concepts. Fortunately, resources exist to help new
traders test the waters!
First, you can familiarize yourself on Tradingview and begin
to chart on day one. You can even use markers on any
Tradingview chart to delineate where you would enter or
exit a position. This is a fun way to hypothetically trade, and
even after years of successful trading, I still do this when I’m
fairly certain but not convinced enough to make an actual
trade. Tradingview also lets you publish your potential
positions and look at setups posted by thousands of other
traders.
Second, with a slight caveat, Bitmex.testnet is a free service
for anyone in the world to try trading using the Bitmex
platform. It uses fake bitcoins and you can even be from the
United States because it does not involve real assets. This is
an excellent resource for learning how to enter and exit a
trade. You can practice stop-limit trading, stop-losses,
trailing stops, and a variety of other trade mechanisms.
Bitmex is also where you can practice longing, shorting,
futures, as well as leverage trading with multiple cryptos.
However, I suggest new traders only use Bitmex.testnet to
practice trade execution techniques. After you enter your
practice trades and set a stop-loss, leave the exchange and
use a Bitmex chart on Tradingview to follow your testnet
position. Sitting on Bitmex and watching the order books
flicker like slot machines is a terrible way to learn to trade.
Applying These Trading Techniques to Other Markets
Overall, the same principles of technical analysis can be
applied to any market. A trader who understands
candlestick formations, chart patterns, trend analysis, or the
RSI can apply and test their knowledge on stocks, forex,
cryptocurrencies, and commodities. One of the neat things
about technical analysis and market behavior is that
markets tend to behave in similar ways across the board
and the techniques are thus broadly applicable.
But I will caution before you go around telling all your
friends you read this book and can trade any market, all
markets have their nuances or differences and trading
techniques described here are far more developed, studied,
and applied in other markets. For instance, candlestick
formations and chart patterns have a long history. Traders,
mathematicians, and academics have spent decades testing
and running statistical analysis and other tests on
occurrences and probabilities. If you are trading the stock
markets, you should probably use the statistics and insights
of Bulkowski or another revered stock trader.
This handbook just gives a thorough but cursory overview
and interpretation of some of the most popular patterns and
signals, and their appearance and previous applicability in
the crypto markets. This is just the very tip of the iceberg,
and by no means is it all inclusive. In fact, I hope my readers
use this handbook as a stepping stone to further explore the
world of trading and technical analysis. This handbook will
not make you an expert, but it can give you legs to stand on
as you journey into the vast world of trading. As the crypto
markets mature over the coming years, we will have more
data to apply to crypto-centric trading.

Develop Your Own Strategies

I’ve never come across two traders who trade exactly the
same way. Often traders share similarities in tactics,
indicators they use, and pattern analysis. Yet, frequently,
two traders look at the exact same chart data and come up
with entirely different theories. In fact, if they didn’t, and
everyone saw markets going the exact same way, we
wouldn’t have chart analysis or market participants betting
against each other. This is all to say, there’s no magic key to
trading successfully and different traders find success using
different methods.
The teachings of this handbook comprise only a single
methodology using only a tiny fraction of the available
collective knowledge and resources. Some traders don’t use
pattern analysis but use price action levels, while others
look at things like Fibonacci lines or moving averages for key
levels of support and resistance. It’s up to you to find what
works and what doesn’t. I hope to get new traders fluent in
chart reading, comfortable with the ebb and flow of price
action and common trade techniques, and provide the
strategic tool belt necessary to manage risk and trade
profitably. Beyond this, I hope all traders refine and develop
their own successful strategies and techniques.
Gamblers’ Mentality: Identification, Prevention, and
Mitigation
No proud trader wants to admit it, but on one occasion or
another every trader experiences gamblers’ mentality. It’s
practically a rite of passage, but the true rite of passage is
identifying the issue and outgrowing it, and quickly.
Gamblers’ mentality occurs when a trader deviates from a
strict, disciplined strategy to embark on a higher risk higher
reward trade(s). A trader may try to justify the occasion in
their mind by thinking something like the setup merits high
leverage and high exposure and that it’s not such a big
deal.
What are signs of gamblers’ mentality? Increasing leverage
or increasing position size beyond your normal conservative
range, fanciful thoughts of big winnings quickly, quickly re-
entering a position after exiting at a loss, over trading to
reclaim a recent loss, switching positions from short to long
multiple times in a short period of time. One sure sign of
gamblers’ mentality is your inner monologue convincing you
what you are doing is NOT gamblers’ mentality.
What can prevent or mitigate gamblers’ mentality?
Identifying the signs and acting on them is the best course
of action. The best mitigation is prevention, which means
enforcing hard rules like if you lose a trade you step away
from the charts for a day. Often, even having time away
from looking at a chart can help you regain objectivity and
calm the dopamine receptors. Gamblers’ mentality is like a
bad dream that you fall back into, and the only way to avoid
it is waking up. You must completely wake yourself to
ensure you don’t fall right back asleep into the same dream.
Take a walk and start a twenty-four hour no trade cooling
period .
If you find yourself breaking the rules and engaging in any
gamblers’ mentality behavior, have your pre-determined
trade rule list to consult. Before going any further, answer
all of your hard rules honestly. If any of the rules and
considerations are violated, do not engage in the trade and
assume you have succumbed to gamblers’ mentality.
It’s Okay to Be Wrong
Accepting that it’s okay to be wrong cannot be overstated.
Every trader is going to be wrong on many occasions. The
important thing is to manage your trades so that when you
are wrong you lose little and when you are right you win big.
If you marry your ego to a trade because you have a
burning desire to be right, you are going to lose money and
look stupid. Sticking with a losing trade because you made a
call that the price is going to go down and it goes up, is a
terrible thing to do. A good trader should be willing to
accept they are wrong and cut losses quickly. Price action is
dynamic and charts are frequently evolving. What may have
been a good call yesterday may be a bad call today and a
bad call today may be a good call tomorrow. Follow the
evidence and be able to quickly let loose the trades you
misidentified.

How to Move Past a Losing Trade or a Winner You Let

Go too Early
Many traders present themselves online as flawless and
always scoring big on every price movement. This can give
a novice trader a false sense of what successful trading
looks like. The reality is, traders only need to be right a
simple majority of the time so long as risk management is
properly executed. Many great traders are often wrong.
Successful trading is less about being right all the time and
more about keeping good trades and ditching bad ones
quickly. This section of the handbook is by far the most
expensive, and I’ve suffered many painful losses before
being able to write about it. I hope it will cost you less than
it cost me when you write retrospectively.
All traders experience painful losers. So, what do we do
when we are confronted with one? First, each loss is a
learning experience, and you should analyze what went
wrong and to the extent possible commit what went wrong
to memory so it does not occur again in the future. Consider
why your trade failed, what could have prevented it, and
how you might approach a similar situation in the future. My
trading strategy was built on a foundation of mistakes and
losses and was built brick by brick through admitting errors
and applying corrections. Second, take a breath and try not
to dwell on the recent loser. Of course, it will be a sensitive
spot for a while, but keep in mind even successful traders
lose frequently. I often take a walk outside after taking a loss
to refresh my mind and channeling some of the frustration
into exercise can help regain objectivity. I wish I could tell
you some trades won’t haunt you after you make a mistake,
but you are haunted only insofar as you allow yourself to be.
Remember your strategy depends overall on having your
winners outperform your losers, and you trade with the
expectation that not all trades will go your way. Lastly,
understand your mentality becomes more durable over
time. After several painful burns, you become more familiar
with the process and how to grow from it. The emotional
ability to handle losses calices like a hand does when
learning to play the guitar or the foot of a kick boxer.
There’s no easy way to earn those calices, which require
shredding some sashimi-like flesh.
Something less spoken about but equally important, is
mentally dealing with a profitable trade that was exited too
early. Many people consider any winning trade as a good
one, which is true. However, as many crypto traders can tell
you, little stings worse than closing a trade at 20% when it
went another 300%. Here’s the fact, you are going to make
misjudgments and some are heavier than others. We do not
know for certain how markets will act in the future, and
traders act on what they believe is likely to happen in the
foreseeable future. If you take any position in a given day
and then reverse course and take the opposite one (not a
strategy I endorse generally), one of your decisions would
end up having been right. Get the “woulda, coulda, shoulda”
attitude out of your head and deal with things as they are.
You could always have done better but, in the same vein,
you could always have done much worse. In these cases,
you did turn a profit! You will have many days where just
turning a profit would be refreshing. It’s going to be painful
along the way, but find solace in the fact that every trader
who has any substantial experience shares similar
experiences and pain.
You are going to miss trades, misjudge trades, lose trades,
and lose profit. Regardless of what stung you, there will
always be another trade. There’s nothing wrong with taking
a step back to regain objectivity and a calm state of mind.
It’s also okay to let yourself feel the pain. Don’t wallow in it,
but recognize “wow, that really stings, what can I do to
avoid this in the future?” Moreover, don’t throw gasoline on
the fire. If you sense you are succumbing to any of the signs
of gamblers’ mentality stop yourself and cool off for at least
a 24-hour period.
Tune Out the Logical Fallacies and Hyperbolic Media
Ignore logical fallacies and clickbait headlines from major
crypto news sources and influencers. It’s important to be
able to filter out the noise as a trader and maintain
objectivity. Many “shills” and news sources regularly pump
garbage news into the space and often make correlations
that can harm or confuse a new trader. For example, a few
common examples are “every April Bitcoin performs well, so
it will here too,” “people always sell crypto at Christmas,”
“every year around the X Convention Bitcoin rises,” or
“Bitcoin bounces every time it hits this (insert indicator or
level).” These amount to nothing more than logical fallacies,
which, even if true, do not prove a future event. Correlation
does not equal causation. Fallacies are frequently incorrect,
and the technical disposition from one occurrence may be
vastly different the next time around.
Similarly, every trader following crypto news or finance
news will see and articles like “Bitcoin’s Crashing” or “Will
Bitcoin Survive?” or “Bitcoin is Headed to All Time High.”
Often news sources fill the headlines with hyperboles and
may call a relatively tame move “catastrophic” or
“incredible.” These news sources are solely after clicks and
will sap as many people to their sites as possible through
whatever means necessary. Unfortunately, some of the
bigger players in crypto media are the biggest offenders.
Traders should not engage in trades or lose objectivity
because of a media publication describing price action.
Again, consult the chart yourself.
This is not to say do not following media, influencers, or
traders but merely be able to recognize propaganda when
you see it. On other occasions, there may be real news
events that affect the markets. For example, regulatory
actions, hacks, lawsuits, major global events like pandemics,
etc. Macro events certainly can play a role on crypto assets
and quickly. Several notable spikes and drops have occurred
as a knee-jerk reaction to some significant event. Moreover,
I do urge traders to follow other traders – not to copy trades
– but to see how different people viewing the exact same
data come to different conclusions. I suggest traders keep
an open mind when following social media of other traders
because if you fill your feeds with an echo chamber, you
may miss something important that other people pick up.
Also, you may see other traders use different techniques
with success and experiment or expand your own strategy.
Of course, it’s also always fun to see who you are betting
against.

Closing Remarks
Congratulations on finishing the Chart Logic handbook! By
now, you should have sufficient information to begin or
expand your journey trading cryptocurrencies. These
techniques and strategies are your key to outperforming
your average HODLer. With this knowledge, fear not the
price swings and volatility of crypto. Each major movement
provides opportunity for those willing to tackle the charts in
a disciplined and objective manner. Use the evidence-based
approach for each trade to corroborate or dispel your
theories profitably. Practice, fail, and then continue
practicing. Don’t give up, and set your expectations
reasonably. Ultimately, success trading is in your hands, and
those who dedicate themselves to the craft are rewarded.
Best wishes and good luck!

Definitions Key
Altcoin – Any crypto that is not Bitcoin.
Alt Season – A period of time where altcoin prices rise
significantly relative to Bitcoin and Bitcoin dominance falls.
Ascending Triangle – A triangle chart pattern with higher
lows and a flat or nearly flat top formed over 21 or more
days.
Averaging Down – Strategically buying at predetermined
levels knowing you likely won’t catch the bottom on the first
try.
Bearish Divergence – When an asset’s price makes a
higher high(s) but the oscillator makes a lower high(s)
(suggests reversal).
Bear Flag – A flag-shaped chart pattern with a downtrend
preceding a rectangular or parallelogram consolidation.
Bear Pennant – A short-term chart pattern formed under
21 days with a preceding downtrend (pole) and
consolidation period shaped like a triangle or wedge.
Bid – The price (order) a buyer wishes to purchase an asset
at.
Bitcoin Dominance – Bitcoin’s market cap % relative to
the entire crypto market cap.
Bounce – A temporary positive trend reversal occurring in a
downtrend.
Breakdown – When an asset’s price breaks below a
support line.
Breakout – When an asset’s price breaks above a
resistance line.
Broadening Wedges – A class of chart patterns with
support and resistance lines that fan outward in an
ascending, descending, or symmetrical manner.
Bullish Divergence – When the price of an asset prints a
lower low(s) while the oscillator displays higher low(s)
(suggests bullish reversal).
Bull Flag – A flag-shaped chart pattern with an uptrend
preceding a rectangular or parallelogram
consolidation.
Bull Pennant – A short-term chart pattern formed under 21
days with a preceding uptrend (pole) and consolidation
period shaped like a triangle or wedge.
Buy – To purchase and possess an asset.
Buy Wall – A large bid visible on the order book.
Candle – The price change of an asset over a select period
of time (open and close) delineated in a red or green stick.
Candle Body – The solid colored space between the open
and close of a candle, which is colored green if price action
is positive from open or red if price action is negative from
open.
Candle Wick –A thin line representing the high and low of
an asset’s price during an examined a period before the
price changed course. The wick represents the part of the
candle that is not the solid portion between the open and
close.
Candlestick Formations – Candlestick arrangements
suggesting a reversal, consolidation, or continuation.
Candlestick formations show the power struggle between
buyers and sellers and are frequently used for timing
reversals.
Chart – A display of an asset’s value over time on X and Y
axes.
Chart Patterns – Repeating patterns of price action found
in markets that suggest a continuation or reversal in trend.
Circulating Supply – The amount of a crypto circulating
that can be traded on exchanges.
Coin – The native currency of a blockchain that can be
either mined or pre-mined.
Cold Storage – A secure offline hardware device similar to
a USB but designed for security and used to store crypto
wallets (private and public keys).
Consolidation – A period where an asset’s price moves in a
narrow range (consolidates) following a move upward or
downward.
Correction – A temporary price decline following an upward
move.
Day Trader – A short-term trader who generally closes their
positions by the end of each day.
Death Cross – A sell signal occurring when the short-term
moving average crosses below the long-term moving
average. Frequently this refers to the 50-day and 200-day
moving averages.
Descending Triangle – A triangle chart pattern with lower
highs and a flat or nearly flat support line formed over 21 or
more days.
DEX – A decentralized exchange.
Dollar Cost Averaging (DCA) – Making regular, time-
based, purchases of an asset to average an entry.
Double Bottom – A reversal chart pattern appearing after a
downtrend and marked by two distinct lows at or nearly at
the same level with a failed rally in between.
Double Top – A reversal chart pattern appearing after an
uptrend and marked by two distinct highs at or nearly at the
same level with a valley in between.
Dump – When an asset is sold off heavily, sharply dropping
the value.
Exchange – A platform like a broker where cryptos are
bought and sold.
Fakeout – A false breakout or breakdown.
Fiat Currency – A currency issued by a national
government (i.e. dollars, euros, pounds, yen, yuan, etc.).
Fundamental Analysis – Assessing the intrinsic value of
an asset through evaluation outside of price action analysis.
Gap – An empty space between candles, usually between
trading periods, where no asset was bought or sold.
Generally, with some exceptions, many crypto charts do not
include gaps because the markets are perpetual.
Golden Cross – A buy signal occurring when the short-term
moving average crosses above the long-term moving
average. Frequently this refers to the 50-day and 200-day
moving averages.
Head and Shoulders Pattern – A bearish reversal pattern
marked by three consecutive highs with the middle one
being highest. The other two similarly lower highs
surrounding the highest high create the appearance of a
head and two shoulders.
Hedge – A counterbalance trade opposing an existing
position to minimize losses and maximize profit.
Hidden Bearish Divergence – When an assets price
makes a lower high(s) but the oscillator makes a higher
high(s) (suggests bearish continuation).
Hidden Bullish Divergence – When an assets price makes
a higher low but an oscillator makes a lower low (suggests
bullish continuation).
Hidden Order – An order hidden from the public order book
by the buyer or seller, which can be used to accumulate or
unload an asset without letting other traders know.
HODL – To hold cryptos for the long-term.
Inverted Head and Shoulders Pattern – A bullish
reversal pattern marked by three consecutive lows with the
middle one being lowest and two surrounding similarly
higher lows creating the appearance of an inverted head
and two shoulders.
Large Cap – An altcoin with a large capitalization –
generally in the billions of dollars range.
Limit Order – A standard buy or sell order where you set a
specific bid or offer price.
Liquidity/Liquid Markets – The ability of a market to have
assets change hands without substantially affecting the
price. For example, a market with substantial buyers,
sellers, and market makers such that a trader can sell/buy a
reasonable quantity of an asset without affecting the price
greatly is considered liquid. An opposing example would be
considered an illiquid market.
Log Scale – The logarithmic chart scale that best portrays
exponential growth.
Long – To buy or bet in favor of an asset’s price rise with an
expectation of profit.
Margin – The amount of funds, used as collateral,
necessary to open or keep open a leveraged trade.
Margin Trading – Trading using funds that are borrowed to
increase position size beyond what a trader could normally
afford.
Market Capitalization – The total value of an asset’s
entire circulating supply.
Market Order – An order that executes a buy or sell at the
earliest market price.
Mid Cap – An altcoin with a medium market capitalization –
generally in the hundreds of millions to low billions.
Miner – A computer, under the Proof of Work algorithm, that
solves complex equations to create new blocks for
unconfirmed transactions.
Moving Averages – A technical indicator displayed as a
colored line(s) that averages price action over a select
period of time.
Order Book – The unfilled bids and offers listed on an
exchange.
Oscillator – A technical tool (portrayed as a line between
two values) that travels alongside the general price action
of an asset showing some corresponding data or data
relationship with the primary price of an asset.
Pennant – A short-term chart pattern formed under 21 days
with a pole and consolidation period shaped like a triangle
or wedge.
Position Trader – A longer term trader who keeps positions
open for weeks, months, or sometimes even years.
Price – The cost of a single asset unit (i.e. one bitcoin is
$5,000).
Price Action – The movement of an asset’s price over time,
which is the foundation of all technical analysis.
Proof of Stake – A popular consensus algorithm used to
forge blocks of transactions based on the random or semi-
random selection of validator computers (“stakers”).
Proof of Work – A popular consensus algorithm used to
create and validate blocks of transactions based on the
heavy computational power of miner computers.
Pump – A sharp and quick rise in asset value.
Pump and Dump – When an asset’s value rises sharply
before being sold-off heavily (often used as a form of
manipulation and orchestrated by bad actors).
Relative Strength Index (RSI) – A momentum oscillator
used to show overbought and oversold conditions, which
measures the strength of buying vs. selling over an
examined period.
Resistance Line – A trend line in which three or more highs
connect showing the higher trend of price action where the
buyers are unable to push the price above.
Retest – When an asset’s price revisits a previous trend line
or other marker of support/resistance.
Retrace – A temporary decline in asset value following an
upward move.
Rounding Bottom – A reversal chart pattern marked by a
series of lows that trend downward before turning upward
creating a bowl-like shape.
Rounding Top – A reversal chart pattern marked by a
series of highs that trend upward before turning downward
creating an inverted bowl-like shape.
Scalp Trader – A very short-term trader who capitalizes on
the smallest market movements and trades very short time
frames down to even single minutes.
Sell – To rid yourself of possession of an asset through a
sale.
Sell Offer – A seller’s posted sale offer of an asset.
Sell Wall – A large sell offer on the order book.
Short – To bet against an asset’s price rise with an
expectation of profit – often on margin (loaned funds).
Small Cap – An altcoin with a small market capitalization –
generally from the thousands to tens of millions.
Spoofing – A widely illegal market manipulation where a
trader intentionally puts up fake buy or sell walls to
influence the price action of the market.
Squeeze – When the market moves opposite to a market
participant such that the participant is forced to close their
position and buy or sell; thus, further driving an asset’s
price up or down.
Stable Coin – A crypto token designed to always maintain a
stable value based on a fiat currency (i.e. $1 USD).
Staker – A validator computer that is randomly or semi-
randomly chosen and rewarded for forging blocks based on
collateral they stake to the network in the blockchain’s
native currency.
Stop-Limit Order – A two input order telling an exchange a
specific price to trigger and execute a limit order.
Stop-Loss – A stop-limit or stop-market order used to close
a trade gone bad.
Stop-Market Order – An order telling an exchange a
specific price to execute a market order.
Support Line – A trend line in which three or more lows
connect showing the lower trend of price action where the
sellers are unable to push the price below.
Swing Trader – A trader who keeps a position open for
several days to a few weeks.
Symmetrical Triangle – A triangular chart pattern with
symmetrical converging support and resistance lines formed
over 21+ days.
Technical Analysis – The study of price action used to help
predict future market movements.
Time Frame – The select period of time a trader wishes to
see price action, which is often displayed in candle form (i.e.
1H, 4H, 1D, 1W).
Token – A crypto issued on a blockchain that is not the
native coin (i.e. an ERC-20 Ethereum token but not
Ethereum itself).
Trend Channel – When an asset’s price ranges between
two parallel support and resistance lines.
Trend Line – Three or more highs or lows connected
showing the trend of price action.
Triple Bottom – A reversal chart pattern appearing after a
downtrend and marked by three distinct lows at or nearly at
the same level with two failed rallies in between.
Triple Top – A reversal chart pattern appearing after an
uptrend and marked by three distinct highs at or nearly at
the same level with two bearish valleys in between.
Volume – The aggregate amount of an asset bought or sold
in a period of time (usually described in $ rather than
units).
Wallet – The public and private keys used to send and
receive a crypto.
Wick – A thin line of a candle representing where the price
went before it changed course.

Pattern Performance Analysis Methodology

This project aims to help traders better understand the
performance of commonly occurring chart patterns in the
volatile cryptocurrency markets. This may be achieved, in
part, by examining frequencies of upward and downward
breaks; prevalence of continuations and reversals for each
pattern; and averaging the % gain or decline following a
particular chart pattern’s breakout or breakdown. The
measurements are designed to help traders anticipate
average price action movements between a breakout or
breakdown and the next consolidation period or trend
reversal of relative size to the examined pattern. Please
read the methodology carefully to best understand how to
interpret the charts and statistics!
Time Frames
All charts are on the one-day time frame.
Price Action %
Price action % movement is based on the next trend
reversal or identifiable major consolidation relative to the
examined pattern’s size.
Considerations may include the examined pattern’s
successive pattern/consolidation duration and size, the
initial run-up of the examined pattern (i.e. pole length), and
any trend break following the initial pattern.
Additionally, if a following period of consolidation is not
relatively similar in size to the original pattern, two or more
consecutive periods equal to the original pattern
duration/size may be counted.
Dashes
Dashes (default blue but green or red on major reversal
patterns) represent the close point of the previous trade for
the calculation. Some price levels have two dashes if two
patterns close at that point (relative to their size).

Breakouts
Breakouts and breakdowns are at trend break - not
confirmation.
Color Coding
Continuation pattern trend lines and dashes are blue, while
major reversal pattern lines are green or red depending on
bottoms or tops, respectively. Some larger patterns may be
given a red/green dash or trend line for clarity.
“C” and “R” Distinctions
Each continuation-biased pattern is marked with either C
(continuation) or R (reversal). These designate whether the
breakout or breakdown is in direct continuation or reversal
from the immediate trend behind it (relative to the
examined pattern). It does not mean sustained reversal or
continuation.
For example, if a flag or pennant is examined, the direction
in which the pole stems from.
Trend Lines
Pattern trend lines are created by connecting wicks and
bodies, whichever best averages the price action. However,
wicks are given first preference.
Gain & Loss %
Price action movement is rounded to the nearest .5%.
Gains are provided under three tiers: 1) unfiltered, 2)
outliers over 400% filtered, and 3) gainers over 100% are
filtered.
Triangle Duration
Triangles require pattern formation of 21 days or greater
(including the day of breakout). Wedge and triangular
shapes under 21 days are qualified as pennants.

Falling and Rising Wedges

Whether rising and falling wedges are marked as R or C
depends on the immediate preceding trend relative to the
size of the wedge. Falling wedges by their very nature are in
a downtrend and when breaking up, they reverse their own
trend. However, for the C and R designation, I look to the
relative trend intact before the shape began. Thus, even if a
falling wedge breaks up, it may be a continuation – despite
breaking its own long-lasting downtrend.
Triangle, Wedge, and Pennant Trend Lines
Triangles and wedges require 5+ touches on support and
resistance lines. Pennants can be formed by fewer with tight
consolidation.
Reversal Necklines
Reversals like double tops/bottoms are preferably played
with slanted necklines rather than horizontal necklines
depending on chart disposition (obvious diagonal necklines
will supersede horizontal ones played at the valley low). As
discussed further in the handbook, this is a more aggressive
strategy than creating necklines solely from valley lows.
Double tops and bottoms may also include those that are
uneven.
 Flags
Flags include all square, parallelogram, and rectangular
patterns (can be sideways, downward, or upward) over any
duration. Flags require 4+ touches on support and
resistance lines.
USD Pairs
For USD traded pairs, USD calculated by Tradingview is used
over USD or USDT if it allows greater chart history or clearer
interpretation.
Pattern Documentation and Exclusions
Not every single identifiable pattern on every chart is
documented but the clearest and largest generally are.
Some stable coins and cryptos with insufficient chart history
are excluded. For example, FLEXA (insufficient data), HIVE
(insufficient data), USDT, PAX, USDC, TUSD, USCD, HYN (no
exchange data), and DAI.

References:
[1]
Note: A short often works by a trader borrowing or buying an asset on loan,
selling it, then rebuying it lower, returning the loaned asset or funds, and
profiting from the difference. However, this process is often
streamlined/automated and the short position is often displayed in a position
that reflects the profits from this series of actions. I.e. asset price goes down,
short trade value goes up; or asset price goes up, short trade value goes down.
[2]
Whether volume in the crypto markets is accurate is up for debate. “Wash
trading” (fake buys and sells executed by the same entity) is suspected of
inflating trade volumes on some bad actor exchanges as much as 90%.
However, this is improving according to a 2019 Blockchain Transparency
Institute Report available at Bti.live .

[i]
Lam, Eric. "Hackers Steal $40 Million Worth of Bitcoin From Binance
Exchange." Bloomberg.com, 8 May 2019,
www.bloomberg.com/news/articles/2019-05-08/crypto-exchange-giant-binance-
reports-a-hack-of-7-000-bitcoin .
[ii]
Norry, Andrew. "The History of the Mt Gox Hack: Bitcoin’s Biggest Heist."
Blockonomi, 31 Mar. 2020, www.blockonomi.com/mt-gox-hack/ .
[iii]
"5 Biggest Crypto Exchange Hacks of 2019." Bitcoinist.com, 26 Dec. 2019,
www.bitcoinist.com/5-biggest-crypto-exchange-hacks-of-2019/ .
[iv]
Saul, Josh. "New Zealand Crypto Firm Hacked to Death, Seeks U.S.
Bankruptcy." Bloomberg.com, www.bloomberg.com/news/articles/2019-05-
24/new-zealand-crypto-firm-hacked-to-death-seeks-u-s-bankruptcy .
[v]
Pirus, Benjamin. "Tether Claims to Be Okay With Merger of Class-Action
Lawsuits Against It." Cointelegraph.com, 17 Jan. 2020,
www.cointelegraph.com/news/tether-claims-to-be-okay-with-merger-of-class-
action-lawsuits-against-it .
[vi]
See e.g., https://www.paxos.com/company/ ; https://www.circle.com/en/usdc
; https://support.usdc.circle.com/hc/en-us/articles/360015478291-How-is-this-
regulated-
[vii]
https://www.hedera.com/hh-hbar-coin-economics-paper-100919-v2.pdf
[viii]
Silkjær, Thomas. "14 Common Misunderstandings About Ripple And XRP."
Forbes.com, 7 Mar. 2019, www.forbes.com/sites/thomassilkjaer/2019/03/07/14-
common-misunderstandings-about-ripple-and-xrp/#45d4328f71d0 .
[ix]
“Breaking: A new bull market has begun. The Dow has rallied more than 20%
since hitting a low three days ago, ending the shortest bear market ever.” Wall
Street Journal, Mar. 27 2020, tweet available at:
https://twitter.com/WSJ/status/1243267094852055041 .
[x]
See Bitmex.com on fees. Available at: https://www.bitmex.com/app/fees .
[xi]
For more information, see
https://www.bitmex.com/app/perpetualContractsGuide .
[xii]
See Nison, Steve. Japanese candlestick charting techniques: a contemporary
guide to the ancient investment techniques of the Far East . (1991).
[xiii]
The Pattern Site. (2005-2019). Bulkowski on the Bullish Three Line Strike,
Retrieved June 22, 2020 from http://thepatternsite.com/ThreeLineStrikeBull.html
.
[xiv]
See e.g., Bulkowski, Thomas N. Trading Classic Chart Patterns . New York,
NY: John Wiley & Sons, Inc., 2002.
[xv]
The Pattern Site. (2005-2019). Bulkowski’s Symmetrical Triangles, Retrieved
June 22, 2020 from
http://thepatternsite.com/st.html#:~:text=Symmetrical%20Triangles%3A%20Ex
ample&text=The%20consolidation%20pattern%20of%20the,to%20a%20strong
%20move%20upward ; see also Bulkowski, Thomas N. Trading Classic Chart
Patterns . New York, NY: John Wiley & Sons, Inc., 2002.
[xvi]
Id .
[xvii]
See e.g., Bulkowski, Thomas N. Trading Classic Chart Patterns . New York,
NY: John Wiley & Sons, Inc., 2002 (noting he found them on
thehardrightedge.com).
[xviii]
See Wilder, J Welles. New Concepts in Technical Trading Systems . Trend
Research, 1978.