In our Trade the Charts series, we try to find technical analysis patterns that will help you with your Bitcoin trading. Right now (Summer 2017) seems like a funny time to be looking at trading patterns for Bitcoin since priced has doubled in less than 60 days and it seems like the price is higher nearly everyday we look at it as prices approach $3000 per BTC.
But we know that won’t continue forever and so do you. Now is the time to equip yourself with the tools needed to trade when the trend in Bitcoin may not be so obvious.
Pattern #2: The Flag and/or Pennant
When thinking of the flag pattern, it is usually wider going back historically and gets narrower as we go to present day, something like this:
As we get closer to the tip we are near a consolidation point and intersection of the two trendlines. Bitcoin’s flag on Bitstamp in this chart looks like this but with an upward angle.
A Continuation Pattern
The Flag is considered a continuation pattern meaning it is often the continuation of the existing trend OR is not an end to the previous trend before making another big move. Stockcharts presents a good article on how to evaluate and trade the flag pattern.
The combination of price and volume helps to form a flag pattern and the flag itself often angles in one direction. Volume should be increasing as the flag forms.
The trading signal is shown with a buy signal that’s above the resistance line (upper line of the flag) or a sell signal that is below the support line (lower line of the flag).
As we’ve said in previous posts, technical analysis includes market psychology so when this consolidation happens (movement from left to right along the flag), this is both the bulls and the bears getting a little tired and recuperating from the previous price action. They are preparing for the next move.
Like with all our trends, start by getting used to noticing and drawing the patterns on paper or on your favorite charting software and only trade amounts you can afford to lose.