Beginners Guide to Reversal Chart Patterns for Cryptocurrency Trading

Chart Patterns | Technical Analysis | Trading

Reversal patterns are the closest thing you get to a crystal ball when it comes to predicting trend reversals within the volatile world of crypto trading. Once you start timing these patterns consistently, you’ll gain an uncanny advantage over your trades.  A well timed trade off a reversal pattern can make the difference between making 5% on a trade or 50%.

It doesn’t matter if you’re trading Bitcoin, various altcoins, or any other asset. Reversal patterns are an extremely important part of any traders skill set.

This guide will be covering 6 of the most widely used reversal chart patterns. Learn to recognize these bad boys for a well-placed trade that will leave you “head and shoulders” (pun intended) ahead of the pack.

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Common Reversal Trade Patterns We’ll Be Discussing

  • Head and Shoulders
  • Inverse Head and Shoulders
  • Double Bottom
  • Double Top
  • Rounding Top
  • Rounding Bottom

Head and Shoulders Reversal Pattern

One of the more popular reversal chart patterns is the bearish formation known as head and shoulders. As you might’ve guessed, the pattern resembles a raised head with two matching shoulders on each side.

The bottom of the left shoulder should always be drawn across to the bottom of the right shoulder. The neckline serves as an area of support which the price will eventually drop below.

When the price drops below the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed lower off the right shoulder towards a bearish breakout.

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Head and Shoulders Overview

Trend – Bearish

Signal confirmation – when the price drops below the neckline on the right shoulder.

Pattern target – tends to break out below the bottom of the right shoulder.

Percentage pattern hits target – 62%

head-and-shoulders-cryptcurrency-trading

Inverse Head and Shoulders Reversal Pattern

The inverse head and shoulders is a common bullish formation which, as you might’ve guessed by now, predicts the reversal of a downtrend. As the name implies, it resembles an upside down head and shoulders.

The top of the left shoulder should always be drawn across to the top of the right shoulder. The neckline serves as an area of support which the price will eventually rally above.

Once the price drops above the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed below (moving upward) the right shoulder towards a bullish breakout.

Inverse Head and Shoulder Overview

Trend – Bullish

Signal confirmation – when the price drops above the neckline on the right shoulder.

Pattern target – tends to break out below the bottom of the right shoulder (moving upward).

Percentage pattern hits target – 75%

inverse-head-and-shoulders-crypto-trading

Double Bottom Reversal Pattern

The double bottom is a bullish formation that is frequently found at the end of a bear market. It predicts the reversal of a current downtrend and commonly resembles the “W” shape. The shape is formed by two consecutive dips that have roughly around the same lows that are separated by a peak.

The patterns neckline, which is drawn above the middle peak, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price rises above this neckline, indicating a bullish rally.

Double Bottom Overview

Trend – Bullish

Signal confirmation – when the price rallies above the peak between the two dips.

Pattern target – tends to break out above the peak towards bullish rally.

Percentage pattern hits target – 65%

Double Top  Reversal Pattern

The double top is a bearish formation that is frequently found at the end of a bullish market. It predicts the reversal of a current uptrend and commonly resembles the “M” shape. The shape is formed by two consecutive peaks that have roughly around the same highs which are separated by a dip.

The patterns neckline, which is drawn below the middle dip, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price falls below this neckline, indicating a bearish trend.

Double Top Overview

Trend – Bearish

Signal confirmation – when the price dips below the valley between the two peaks.

Pattern target – tends to break out below the bottom of the right peak to breakout towards a bearish movement.

Percentage pattern hits target – 74%

double-top-trading-cryptocurrency

Rounding Top Reversal Pattern

This bearish reversal pattern predicts the reversal of an uptrend and is sometimes referred to as an Inverse Saucer. This pattern is more easily found under the long term reversal patterns which typically last weeks or even months.

Rounding Top Overview

Trend – Bearish

Signal confirmation – price exceeds below the right bottom of the saucer.

Percentage pattern hits target – 27%

Rounding Bottom Reversal Pattern

This bullish reversal pattern predicts the reversal of a downtrend and is sometimes referred to as a Saucer Bottom. It’s also easily identified by its “U” shape. This pattern is typically found under the long term reversal patterns which last weeks or even months.

Rounding Bottom Overview

Trend – Bullish

Signal confirmation – price exceeds above the right top of the saucer.

Percentage pattern hits target – 60%

Practice Almost Makes Perfect

These reversal chart patterns are not too hard to recognize once you actually remember to look for them. Look over a few of your favorite cryptocurrencies here, and see if you can spot a few reversal patterns I’ve mentioned here within this guide.

These powerful cues will help you forecast dramatic shifts within the supply and demand of any cryptocurrency. Reversal patterns are a very important tool to add to your cryptocurrency trading skillset, so learn them, love them, and use them.

Happy trading!

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