At first glance, Bitcoin price movement seems extremely unpredictable. You never know when the price can show a rapid surge, a sharp drop, or how long Bitcoin is going to trade in a certain range. Let’s see about recognizing bitcoin market trends and patterns: a guide for beginner traders. One of the best platforms offering reliable trading for immediate buying of Bitcoins with credit or debit card is Xcoins.
While there is no exact answer to where the Bitcoin price will go in the short term, there is one important tool that helps determine the possibility of a particular outcome. Charts.
Not only the Bitcoin price chart that is used for technical analysis is important here but also numerous charts for fundamental analysis. These include, for example, network activity, hashrate, Bitcoin dominance level charts, and so on.
Charts allow you to find patterns and predict possible market behavior by comparing historical and current data. But then the next question arises: how to read charts correctly and where to look for these patterns? Let’s find out how to identify a trend, find patterns, and what they mean.
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How to recognize the trend line on the Bitcoin price chart?
Looking at the Bitcoin to Dollar chart, sometimes it seems that the price is moving along invisible lines. This can be seen in any timeframe from 1 minute to weekly. And in what sense, it is so. When the price moves up or down for a long time, it means that the price is in an uptrend or a downtrend respectively.
An uptrend line is drawn along the bottom of rising support levels (valleys). And conversely, a downtrend line is drawn along the tops of resistance areas (peaks). It takes at least two tops or bottoms to draw a valid trend line, and three to confirm a trend line.
The more often the price tests the trend line, the more stronger and reliable the line becomes. At the same time, the steeper the drawn line, the higher the probability of its breakout.
There is also one general rule for all who draw trend lines — do not force them to fit the market. If the trend line doesn’t fit right and you try to make it look valid, then it doesn’t mean that it’s a valid trend line. Such action may lead to false expectations and wrong trend analysis.
How to determine a trend channel?
However, the price usually follows more than one trend line, constantly moving up and down. If you take a step forward and draw one more trend line, you’ll make a trend channel. To create an ascending channel, draw a parallel line at the same angle as the uptrend line and then move that line to the recent peak. The descending channel is the opposite of the ascending one. Simply draw a parallel line at the same angle as the downtrend line and move it to the level of the most recent valley.
The trend channel shows potential areas of support and resistance for the price. Thus, when the price hits the lower trend line, it can be used as an opportunity for short-term buying and vice versa.
Sometimes the price movement does not have a pronounced upward or downward trend. In this case, a sideways trading range is formed where an asset can be traded for some time. Quite often, such price movement is considered a period of accumulation or uncertainty in the market.
As the trend develops, it is also important to pay attention to the trading volume. Basically, a new trend is formed with increased volume, giving the trend momentum. At the end of a trend, the trading volume usually decreases.
Like in drawing trend lines, when you draw trend channels, you don’t need to force the price to the channels. Also, if trend lines in the trend channel are not parallel, then it is no longer a trend channel. Instead, such a “wrong trend channel” may be considered as one of common patterns.
How to recognize patterns?
Price chart patterns hint at a further trend continuation or its reversal. Patterns allow you to find promising entry points, determine the potential price movement (in case of pattern confirmation), as well as when it is worth fixing financial results.
Identifying patterns can be challenging and requires a lot of practice. But if you learn how to correctly recognize patterns over time, you will get a powerful tool for predicting price movements.
Each chart pattern has its own formation and development conditions. So before looking for patterns on the price chart, it is recommended to familiarize yourself with these conditions in more detail. However, there are several aspects that apply to most patterns.
First, it is generally accepted that the higher the timeframe on which the pattern was formed, the more reliable the pattern is since it takes more time for its formation. Second, the preceding trend plays an important role in pattern formation. It should be established, especially for trend reversal patterns. Thirdly, the trading volume is one of the key indicators of pattern development and confirmation. And fourthly, if it seems to you that the pattern has already been partially formed, then it doesn’t mean that it will eventually form and confirm.
The last aspect is the main reason why the surge in trading volume occurs exactly at the end of the pattern formation. A lot of traders also monitor the market and price chart, may see the same pattern and open positions “according to the pattern” after its confirmation. The potential price movement after pattern confirmation can often be calculated by adding the pattern height to the breakout point.
Does Bitcoin have fundamental patterns?
Although traders mostly look for patterns on the price chart, some kinds of patterns can also be observed among Bitcoin fundamentals. Here are some examples.
Bitcoin has a clear algorithm for reaching the maximum supply. Once every 210,000 blocks, or approximately every 4 years, a block reward halving occurs, reducing the increase in the circulating supply. Because of this, many Bitcoin enthusiasts point out that Bitcoin has a cyclical nature.
As the Bitcoin historical data shows, its price experiences a rally for 1-1.5 years after the halving. After that, a deep correction period goes for 1-2 years. Then, there is an accumulation period for 0.5-1.5 years when the price moves within a certain range before a new halving takes place.
Another potential pattern can be found on the BTC dominance chart. In 2013, 2017, and 2021, when the crypto market skyrocketed, the BTC dominance level gradually decreased. This suggests that the BTC price surge was not as big as the rest of the market. However, when the crypto market reached its peak and correction began, the BTC dominance level, on the contrary, showed growth. It means that investors often exit altcoins to strengthen their positions in Bitcoin during the predominance of negative market sentiment.
Although patterns allow you to find possible market scenarios, they do not guarantee that the market or price will behave accordingly. Other market participants may act counter-trend or not see the same patterns as you which may cause the price to go in the opposite direction than you expect. Claims about Bitcoin’s cyclicality and other fundamental patterns may sound reasonable right now but this does not mean that the cycle can never be broken. That is why before trading with a trend or pattern, traders should also take into account the possibility of an opposite outcome of events.