Which figures are capable of forming price charts and what do these figures mean? In the first part of the review, we started on a story about the most common patterns, explained how to act when a "head and shoulders" figure appears, as indicated by a double top or double bottom, and also started talking about the triangles.
Let us remember that when you notice the appearance of a triangle on the chart, it is better to lie low and wait for its full formation. Watch for the volume of trades. If it suddenly goes up after buzzing out, then the resistance will be breached soon. When interpreting triangles, it is important to take into account the direction of the preceding trend. Without this factor, the registration of a symmetrical triangle (as in the picture above) does not reflect any useful information, since in this case, the triangle does not give a clear prediction of the price’s behavior.
The ascending triangle is a rather rare figure, and it definitely speaks about positive changes in the market. It is possible to expect an increase in the price of the asset only after it is fully formed. In this case, the nature of the trend before the ascent of the rising triangle, whether it was ascending or descending, does not change the situation and one can expect growth.
The rectangle is a figure that confirms the trend. It can be formed in a period of several weeks to several months. The rectangle is also called a market corridor limited by a line of resistance from above and a support line from below. Analyzing this pattern is necessary while observing the indicators of trading volume. Since the price can jump quite unpredictably inside the corridor, it is the volume of trades that will indicate which direction it will take after the completion of the graphic model. With an uptrend and an increase in trading volume, we can safely say that the price will continue to grow.
This figure is also often called "diamond.” As a rule, the model is formed on an uptrend and signals an early reversal. A distinctive feature of the figure is the narrowing and widening of the range of fluctuations in the price of the asset and the parallel lines (as opposed to the "head with shoulders") of the support and resistance line, which eventually forms a rhombus on the chart. The breakdown of the support line by the right side of the diamond serves as a signal to sell.
The "diamond" is beautiful in that it allows one to calculate to what extent the price of the asset will fall. To calculate this figure, it is necessary to postpone a distance equal to the height of the diamond from the level of the right breakout (the point at which the price passes through the resistance line). This is shown graphically in the figure. Try to practice and check the "diamond" hypothesis in practice.
We are not yet done reading the charts, and in the next review, we will tell you what to do if the crypto market throws out the flag. Best of luck in trading!