Anticipate Bullish or Bearish Movements in Bitcoin's Price With These 11 Chart Patterns

A 2010 Northeastern University College of Science study found that human behavior was 93% predictable. This figure is quite incredible when you think about it, and the director of the study said at the time that spontaneous people were mostly absent from the population:

“Spontaneous individuals are largely absent from the population. Despite the significant differences in travel patterns, we found that most people are equally predictable.”

The director of the study refers to travel patterns here because the study focused on the mobility patterns of anonymous users. While the common perception is that our actions are random and unpredictable, this study established the opposite.

This predictability of human behavior can be exploited in many other domains. It can be exploited in a field that will be of great interest to you: the prediction of asset movements in financial markets. When we carefully study the way an asset's price evolves, we realize that certain patterns frequently recur and, more interestingly, that the way the asset's price evolves afterward is identical to what happened previously.

This is where Mark Twain's famous quote comes into play:

“History doesn't repeat itself, but it often rhymes.”

By thoroughly analyzing an asset's price movement, you can bring out these chart patterns that will allow you to make better decisions on what to do next.

While some fundamental investors are very critical of trading patterns as being nothing more or less than astrology, this is wrong in my opinion. If the charts of an asset's evolution are not magical in themselves, the way the human mind will interpret and react to these charts can be predicted in a more refined way.

This is where the study of human behavior I mentioned in the preamble comes into its own. It is the psychology of human beings that plays a major role in determining how markets will evolve. Since human behavior is mostly the same, you can define more or less precise strategies after having identified certain chart patterns.

In the following, I will present you with the most common chart patterns that you need to know to better anticipate future developments in the price of Bitcoin. Note that this also applies to Altcoins if that's what you're interested in. Finally, be aware that these patterns become more effective the larger the number of participants in a market.

What applies to Bitcoin will not be as accurate on an Altcoin with very few participants.

The support and resistance lines are the fundamental notions to know before going further

Before going any further, I would like to define some fundamental notions that will be used later. A Bullish move means a potential uptrend for the price of an asset. A Bearish move means a potential downward trend in the price of an asset. Once you have determined these patterns, you can better position yourself to trade the asset in question.

In addition, to identify these patterns, you need to do a technical analysis of the price of an asset by drawing support lines and resistance lines. A support line is a line where the price of an asset stops falling. Resistance is a line where the price of an asset stops rising.

Finally, you need to look at trading volume before confirming how accurate the chart pattern you identify is. For example, a strong upward movement that is not supported by a proportional increase in trading volume means that the asset in question may not be able to sustain this upward trajectory.

Ascending Triangle

An ascending triangle is a bullish continuation chart pattern that means a breakout is likely where the triangle lines converge. To draw this pattern, you would place a horizontal resistance line on several resistance points, then draw an ascending line along with the support points:

The upside projection after the breakout is the same as the size of the triangle you may have drawn. You can place a stop-loss order below the breakout level.

Descending Triangle

Unlike an ascending triangle, the descending triangle represents a bearish market downtrend. The support line is horizontal, and the resistance line is descending, signifying the possibility of a downward breakout:

The downward projection after the breakout is identical to the size of the triangle you may have drawn.

Symmetrical Triangle

For a symmetrical triangle, two trend lines start to meet which means a breakout is coming up or down. The support line is drawn with a bullish trend and the resistance line is drawn with a bearish trend. Although the breakout can go either way, the price generally follows the general market trend:

Pennant

Pennants are represented by two lines that meet a set of points. They are often formed after strong upward or downward movements as traders pause and the price begins to consolidate before the trend continues in the same direction:

Flag

The flag chart pattern forms a sloping rectangle, where the support and resistance lines progress in parallel until there is a breakout. The breakout is usually in the opposite direction of the trend lines, which means that it is a reversal pattern:

Wedge

A wedge pattern represents a tightening movement as the price moves between support and resistance lines. It can be a Rising Wedge or a Falling Wedge.

Unlike the triangle, the wedge has no horizontal trend line and is characterized by either two uptrend lines or two downtrend lines.

For a Falling Wedge, it is generally anticipated that the price will break through resistance to rise:

For a Rising Wedge, the expectation is that support will be broken, which will cause the price of the asset to fall. This means the wedge is a reversal pattern as the breakout is opposite to the general trend.

Double Bottom

A Double Bottom is similar to the letter W and indicates when the price has failed twice to break the support level. This is a reversal chart pattern and it indicates a trend reversal. After unsuccessfully breaking through the support twice, the market price shifts towards an uptrend:

Double Top

In contrast to the Double Bottom, the Double Top looks more like the letter M. The trend enters a reversal phase after failing to break through the resistance twice. The trend then follows back to the support threshold and starts a downward trend breaking through the support line:

Head and Shoulders

The Head and Shoulders pattern tries to predict a market reversal from Bull to Bear. This pattern is characterized by a large peak with two similar peaks on both sides. Both three levels fall on the same support line. This pattern is likely to give a downward breakout:

On the other hand, you have the Inverted Head and Shoulder pattern which is a Bullish signal and indicates a reversal from Bear to Bull.

Rounding Top or Bottom

A Rounding Bottom, also called a cup, usually indicates a bullish upward trend, while a Rounding Top indicates a bearish downward trend:

Some traders are taking advantage of the middle of the U-shape forming a Rounding Bottom to buy, capitalizing on the upcoming break on resistance levels.

Cup and Handle

The Cup and Handle pattern is a well-known continuation pattern that signals an uptrend in the market. It is the same pattern as the rounding bottom above, but it has a handle after the rounding bottom. The handle looks like a flag or pennant, and once it is complete, you can see the market break out into an upward trend:

Final Thoughts

The 11 chart patterns that I have just revealed are the ones that come up most often. The fact that all traders know and use them increases the probability that the outcome will be the one expected. A sort of self-prophecy occurs, as everyone expects a certain outcome when the chart pattern appears.

With time and practice, you will be able to spot these different chart patterns. This will allow you to better anticipate the evolution of the Bitcoin price. You will be able to make your own decisions based on your technical analysis rather than listening to others point out these patterns.

I don't trade Bitcoin, because I am a HODLer. But I like to study these chart patterns for my readers. It's also exciting to see how market psychology can predict certain short-term price movements of an asset.

Of course, you can also use these chart patterns on the stock market. That's where they were first highlighted.