FAQs

What is chart pattern analysis?

Chart pattern analysis involves identifying repeating patterns, apparent in all markets, and running statistical analysis on breakout/breakdown tendencies and price performance. Interestingly, repeating and widely identifiable patterns tend to behave similarly and frequently suggest continuations or reversals of price trends. Pattern analysis is a widely used technical tool that assists traders in predicting future price-action-based performance, and this study is a major milestone for crypto-centric trading.

Prior to this study, no crypto-centric statistics exist for traders to gauge past performance of chart patterns. This analysis aims to help traders better understand the performance of commonly occurring chart patterns in the volatile cryptocurrency markets.

To whom is the performance data useful to and how can I use the data?

The performance data is designed to give traders an edge when trading chart patterns in the crypto markets. Given the daily time-frame, this information is particularly useful to Swing Traders and Position Traders who keep trades open for several days, weeks, or even many months.

Traders can use the statistical probability of pattern breakout direction and movement % as a tool when considering future pattern based trades. Moreover, the frequency of trend continuations may be particularly useful if breakout statistics are near a 50/50 coin toss.

As always in technical analysis, chart patterns should be traded in light of other indicators, including volume, Japanese candlesticks, trend lines, momentum gauges and divergences, moving averages, or other complimentary tools.

Please be sure to read the Legal Disclaimer and understand the significant risks of trading cryptocurrencies before deciding whether, in light of your own financial circumstances, trading is an appropriate activity for you. This information is educational and does not assert or guarantee any performance-based results.

How can we take seriously the breakout gain percentages when they are so off-base from what I am used to in stocks and forex trading?

Easily. All data is aggregated based on the past performance of each pattern, and you’d likely be surprised how many big gainers occurred during the bear market years. Cryptocurrencies have volatility unlike like any other market, which is why they are great to trade. However, understanding the largest % gainers occur infrequently and may distort the overall data, I have provided three tiers of averaged % gains: 1) unfiltered, 2) filtered (outliers over 400%), and 3) vanilla filtered (all gainers over 100% removed). Still, after examining thousands of patterns, I cannot call a % gain over 100% an outlier in these markets. We should be proud of our market volatility and the amazing performance it offers speculators!

Why don’t you give the combined BTC and USD(T) performance to everyone on this website?

I believe all traders should be able to see the results of this study as they pertain to each pair because, in my opinion, the findings for individual pairs are valuable information the entire space can benefit from. The combined averages are given to handbook readers to give them an additional layer of analysis and perspective and an extra edge on other traders. Still, I emphasize to handbook readers the importance of looking at BTC and USD(T) pairs separately because performance does differ and traders should be aware of pattern performance specific to the directly traded market.

If you cannot afford the handbook, you may take the public data and average the pairs for yourself. This is not privatized education profiteering, and Chart Logic supports the premise of free knowledge championed by Aaron Swartz. If you want to use the handbook for non-personal educational purposes (i.e. trade group study, teaching, etc.) email founder@chartlogic.io and detail your purpose, and I will do what I can to provide it to you at author printing costs.

Isn’t it troublesome there is a latitude of subjectivity with pattern analysis?

Of course. As with everything in technical analysis there must be a latitude of subjectivity. However, I do my best with the methodology/rules to maintain an objective stance when conducting the analysis. All patterns are treated equally and every one has considerable amount of thought on it’s identification, disposition, and close point. The good news is, if you follow the methodology you should be able to apply the analysis similarly.

Additionally, this is why I publish all of my work publicly. I want everyone to see the source of the data, even if they disagree with the rules I have adopted to achieve it. Check out the Proof of Work section to see hundreds of charts sourced for pattern analysis.

What other techniques do you use with pattern analysis? 

I use a myriad of technical analysis techniques: candlesticks, trend lines and channels, volume, momentum gauges like the RSI and accompanying divergences, moving averages, and more!

Do you teach other aspects of technical analysis?

Yes! I believe the job of a trader is to act on a strong inclination that a market will behave a certain way imminently, and, to make this determination I use a multi-step and evidence-based approach to tackling each trade.

Please check out the Chart Logic Technical Analysis Handbook for a comprehensive look at technical analysis applied to the cryptocurrency markets. For an idea of what’s inside, checkout the TA Handbook tab on the navigation bar.

Why don’t you use price targets for each pattern?

While some traders like to place pre-determined price targets for each type of pattern (i.e. a pole’s length for a pennant or flag), I take a different approach. In my five years experience trading cryptocurrencies, I realized how often chart patterns do not conform to strict price targets or how they frequently appear arbitrary. One goal of this analysis is to give traders another way to seek a price target for a chart pattern: by examining % gain or loss averages for each commonly identifiable pattern. This is not to say, I am against traders who use determined price targets. Rather, I am simply offering a performance based way to consider entries and exits using pattern analysis.

I believe this information is useful to traders regardless of whether they prefer pre-designated pattern targets.

Why use relativity as the basis for price action averaging?

Even though a period of consolidation following a pattern will not be discovered as being relative to the size of the initial pattern until after the fact, by averaging past performance, a trader can understand the average % gain or loss for a specific pattern without waiting for that period of consolidation to appear. In other words, even without knowing the future performance of a current pattern breakout, a trader can tell when the average range of that pattern’s performance has been achieved and thus help indicate an exit.

Will further coins and tokens be examined? 

Absolutely! This is only the beginning. Not only will more cryptocurrencies be evaluated and the data improved, but I will also be comparing data within different subsets of cryptos and exploring different relationships. Over the next year, Chartlogic will further its analyses greatly! Additional analysis will be available for free publicly, but, as always, more information will be published in my books for my readers.

Why do you use USD calculated pairs, especially if you can’t trade all cryptos for USD or an equivalent stable coin?

For two reasons: 1) USD calculated pairs often have greater price history than a USD or USDT pair, and 2) even if an altcoin is not traded against USD or an equivalent stable coin, you CAN still make trades based on the technical analysis of USD calculated charts

Is there duplicity in data with some of the altcoins given Bitcoin’s relationship with the market as a whole?  

Sure. But, similar relationships exist for stock traders between individual stocks and say the SP500. This doesn’t mean measuring them knowing potential greater market influences negates the value of the study. Also, by averaging the data, the overall market impact of a significant event is averaged. The relationship between Bitcoin, altcoins, and the entire crypto market capitalization is explored further in the Chart Logic Handbook and will continue to be a very interesting subject of inquiry.