Steemit Crypto Academy | Homework task by @stream4u | What is Chart Patterns? | Price Breakout - Continuation Patterns - Reversal Patterns | STOPLOSS.

Traders use various technical analysis tools in making trading decisions on whether to buy or sell a crypto asset or even to stay away from the markets. It is very important for a trader to have an understanding of the various chart patterns as he also combines them with other indicators for proper trade management and execution.

What is a Chart Pattern?

In trading, Chart Patterns are basically price formations. Since Crypto assets’ prices keep changing, they make various forms/patterns. Chart patterns are used by traders to make a proper investment decision on whether to buy or sell an asset at a given time. Chart patterns include trend continuation patterns such as higher highs or lower lows and reversal patterns like double tops, double bottoms. However, these cannot be traded in isolation; they ought to be coupled with other trading technical analysis tools like support & Resistance, candlesticks (price action) for proper trade management.

What Is A Price Breakout?

Normally whenever prices reach support zones or resistance zones, they tend to bounce off/get reversed and move back in the opposite direction. A price breakout refers to a situation in the market where the price of an asset breaks the former resistance line or the support line rather than bouncing off that line/zone.

What Is A Continuation Pattern?

A Continuation pattern is a crypto market situation where prices continue moving in a certain direction whether upwards in an uptrend or Downwards in a downtrend. The higher highs characterize the upward/uptrend continuation pattern, and lower lows characterize the Downward/downtrend continuation patterns.

What Is A Higher High Formation?

A higher-high formation refers to a market situation where the market prices keep going higher than their previous highs.

Lower Low Formation

A Lower low formation is a market situation where the asset price moves In a downtrend and keeps forming lower prices than its previous low price.

A Reversal Pattern

A reversal Pattern is a market situation that signals a trader that the trend of the market is likely to change direction. For example, if it has been in a downtrend and a double bottom forms then that means it’s now preparing to head upwards in an Uptrend and when it has been moving in the upwards direction (uptrend) and a Double top reversal pattern forms then it is an indicator that the markets are going to change direction and head in the downtrend.

What is a Double Top Pattern?

A Double Top pattern is a chart formation pattern that usually forms after an uptrend and this indicates that the asset price is likely to change direction and move in the opposite direction (Downtrend)

In the chart above, the double top formed after a proceeding uptrend and when it formed, the market reversed from the uptrend to the downtrend.

What is a Double Bottom Pattern?

A double Bottom pattern is a chart formation pattern that forms after a proceeding trend (Double Trend). When a Double bottom forms it shows that the market is likely to change direction and head upwards in an Uptrend.

The Stop loss and its importance

In trading, not every trade will be a profitable one. Some end up going against your trading decision, in other words, they turn out in losses. Therefore, for proper trade management, a stop loss is very vital in trading. The Stop loss guards the trader against losing all his investments on just a few bad trades.

Where To Find & How To Set A Stoploss?

A stop loss is set at the most recent swing low or swing high depending on whether you are going for a buy order or a sell order. For example on the Chart above; Point A, B, C, and D are the good points where you can set a stop loss. When you are going for a buy lets say from B to C, you will then have to set your stop loss around 10 pips below point B.

When you want to go for a sell from point C to D, then you will have to set your stop loss at point C.

Inconclusion, the most important thing in trading that I have learnt and keep reminding myself with, its about setting the stop loss. When you are into trading, the first thing to do before thinking about making profits. You have to first safe guard your capital by ensuring that you set a good stop loss for every trade.

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All the images used in this article are screenshots taken by me from my Meta trader 5 PC trading application.

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Cc
@stream4u