Cryptocurrency Technical Analysis: Three Channels to Understand
When it comes to technical analysis, there are thousands of patterns to watch for, decipher and understand along the way. And to be honest -- they’re not so tough to understand.
In fact, one of the easiest ones to understand is the channel, defined as two parallel trend lines within a tight trading range. The upper line connects the price peaks in the channel while the lower line connects the price lows.
What’s nice is that such lines tell you when to buy and when to sell.
If the stock hits the upper line without breaking higher, you sell. When the stock hits the lower line without breaking through, you buy.
Learn How to Spot Unique and Predictable Patterns in Cryptos
There are then three types of channels to understand
One is the ascending channel, where the price is contained between upward sloping lines with higher highs and higher lows along the way. A greater number of trend line touches and recoveries can provide higher reliability.
The second is the descending channel, where the price is contained between two downward sloping lines with lower highs and lower lows. With the descending channel, the greater number of upper trend line touches with failure can provide higher reliability, as well.
The third is the consolidation phase, or the horizontal channel where the stock in question trades sideways in a tight pattern of highs and lows.
We can see a clear example of all three patterns with VeChain (VET)
At the start of January 2019, we can see a descending channel setup.
Around January 20, 2019, we can see an ascending channel, and we’re beginning to see a consolidation pattern after January 27, 2019.
And then, of course, if the trend line is broken to the upside or downside, we have a potential breakout. The idea is that once a stock begins to break above prior resistance points, the stock has the potential to trend even higher.
However, you never want to rely on just channels to dictate where you buy or sell.
You want to confirm your findings as much as possible. For example, if Bitcoin fell to the lower range of its channel, also look for confirmation with Bollinger Bands (2,20), moving average convergence divergence (MACD), Williams’ %R (W%R) and relative strength (RSI).
It never hurts to confirm. In fact, it can improve how you approach your trade.
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