Let's Learn Crypto Intraday Trading Using Bar Patterns

I have been trading crypto since 2017. Before that, I was exclusively trading forex for four years. There are many different things between the two, but the bar patterns often repeat themselves. It doesn’t matter whether you trade forex, commodities, stock, or crypto; bar pattern analysis is mostly the same.

When it comes to intraday trading, you can try to trade in shorter timeframes (M5, M15, M30) although I prefer to use the most standard of them all, H1 or 1h timeframe. Since many intraday traders use the same 1h timeframe to make their analysis, I think it’s easier to identify bar patterns from there.

There are many different candle bar patterns that you can identify but personally I only use two of them (pin bar and engulfing bar). Some other PA (price action) traders love to identify inside bar as well, but I rather keep it simple. Below is a good illustration of several different price action bar patterns.

Note:

* A pin bar should have a long wick/tail. Its wick needs to be at least 2.8x the size of the body

* An outside bar or engulfing bar must look convincing; the size of the outside and engulfing bar must be at least 40%-50% bigger than the previous bar, and without any long wick on the direction we are predicting (i.e., if we want to go long, the wick from the top to the close must be very short)

Identifying the bar pattern alone is far from enough. You also need to make sure they happen at the top or bottom. You can do this by drawing the closest support and resistance levels where the price has bounced before. Take a look at the below chart:

As you can see here, price bounced back multiple times around a resistance level ($30,600). In this case, you should identify the right pin bars and engulfing bars around $30,600. The correct bar pattern in the above example would be the pin bar on May 17. This one below:

This pin bar was formed after several bullish bars. It hit the resistance at $30,600 and it reversed with that pin bar. You should have made a short position right here.

In the opposite scenario where we go long, you can also do the same thing from a correct support level. Here are some examples below:

From this chart, we can spot three different opportunities. There are three pin bars rejecting at $28,800. However, only one of them is a perfect setup. The first pin bar is not an ideal scenario because the wick is not long enough (less than 2.2x of the body). The third pin bar is also not ideal because the size is too big, and therefore, you would need a bigger TP (Take Profit) level if you want a 1:1 risk:reward ratio.

The second pin bar is the only perfect setup from the above chart because the wick/body ratio is convincing and because it is rejecting at the right support level. The pin bar size itself is not very big (unlike the third pin bar), which means you can put a high TP level and still make a decent amount of money.

In the previous section, we have learned how to identify candlebars and SR levels, but it’s equally important to know when to take profit and when to cut loss. For every trade setup, you must be able to see where are your TP (Take Profit) and SL (Stop Loss) levels.

Every trader has a different risk appetite, and analyzing TP and SL is more about risk management than technical analysis. Me personally? I would like to see my SL a little bit below/above the wick of the bar. For example, let’s use the latest chart once again where we previously identified the perfect pin bar:

That pin bar closed at $29,029.5. The bottom wick was $28,595. I would have placed my SL at $28,545 (a little bit below $28,595).

How about the TP level? I like to have at least 1:1 risk:reward ratio. That means if I risk $500 for every loss, I need to make at least $500 for every profit as well. In a simple scenario where I keep the R:R as simple as 1:1, I would exit this particular trade at $29,616.

Personally, I like to keep my reward at 2x of my risk. You would have more losses if you follow my risk management strategy but it’s worth it in the long run since you make more money every time you win compared to every time you lose. If you trade altcoins, you might want to consider even higher reward vs risk ratio.

You can lose 50% of the time but still be profitable with a good R:R ratio. You just need to keep it consistent. There’s no definitive answer when it comes to R:R. Backtesting is the key before you decide on your own SL and TP levels.

Another important factor to keep in mind is the trend. Identifying trend is easier than making the trades themselves. In the crypto world, the trend usually starts like this: BTC halving => bull market => bear market => sideways market => another BTC halving.

This cycle might not continue one day, but so far, it has been like this since 2012. As you may have noticed, we are currently in a bear market. That means you are more likely to make money shorting the market rather than going long.

It doesn’t mean there’s no opportunity in longs, but it’s just much wiser to follow the current trend. At the end of the day, everybody has different risk appetite. Some traders don’t care what the current trend is, and they trade both ways.

However, if you want my personal advise, I do not recommend making trades against the current trend.

There are multiple ways to identify a trend. Some traders like to analyze head and shoulder or higher high-higher low and lower high-lower low.

Below is the illustration of higher high-higher low and lower-high-lower low:

Meanwhile, below is the illustration of head and shoulder pattern:

Basically, any of the two patterns above will help you to identify current trend and trend reversals. I think identifying head and shoulder or higher high-higher low is crucial in forex but in crypto it’s different. I believe fundamentals are still the most deciding factor for the crypto trends. You just have to see the timeline around BTC halvings because (for me) it is more important than any technical pattern.

Finally, we also need to know where to make our intraday trades. You should trade futures if you plan to trade with both long and short positions. To start learning, you can go with the standard crypto platforms like BitMex, Binance Futures, Kraken, or FTX.

Remember to always withdraw some of your profits periodically because some exchanges might go bankrupt if the current bear market continues for a long time. I highly advise you to keep updated with all the news regarding these companies’ profitability. After all, they are centralized exchanges, and there are always risks involved when you trade with them.