[ATNET Crypto Trading Glossary] Pattern Trading (Formation Trading) in Crypto

method     · [technique]
What is pattern trading and what are the most common formation patterns to watch for in crypto.

Pattern trading, or formation trading, refers to making trading decisions based on standard chart patterns.

You will most often see pattern trading on “slower” markets such as stock markets, and a lot of crypto traders use formation trading as well. Again, usually on the “slower”, large cap crypto markets.

Pattern trading is notoriously linked with retail traders who go with someone else’s advice because they don’t know what they’re doing, and often lose. Specifically, vague patterns like “head & shoulders” are often mentioned in this way.

The fault lies not in the market patterns themselves though, it is in the way they are used.

Why do traders lose with pattern trading?

Markets do indeed move with some regularity. There are real fundamental cycles, in crypto this could be the bitcoin halving for instance, and these do influence the market. Another thing is the typical market participant - traders have their favorite markets to trade, people with similar focus or mentality flock to the same market, they will trade the market with almost the same mindset and that’s how regular patterns develop.

The mistake is to trade directly off the pattern. The correct approach is to treat the pattern as a more general information about the state of the market.

Most common patterns on crypto markets

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