What are the most reliable chart patterns to look for during a liquidation event?

1 Liquidation candles

One of the most obvious signs of a liquidation event is a long and sharp candle, either bullish or bearish, that breaks through a significant support or resistance level. These candles indicate a large amount of orders being executed at once, either by liquidated traders or by those who take advantage of the price movement. Liquidation candles can also create gaps in the chart, which are areas where no trading activity occurred. Gaps often act as magnets for future price action, as traders tend to fill them with orders.

2 Reversal patterns

Another type of chart pattern that can signal a liquidation event is a reversal pattern, which indicates a change in the prevailing trend. Reversal patterns can be either bullish or bearish, depending on the direction of the trend. Some of the most common reversal patterns are head and shoulders, double tops and bottoms, wedges, and triangles. These patterns usually consist of several peaks and troughs that form a recognizable shape, and are confirmed by a breakout or breakdown of a trend line or a neckline.

4 Volume analysis

Volume analysis is a crucial tool for technical analysis, as it shows the amount and intensity of trading activity in the market. Volume can help you confirm or invalidate chart patterns, as well as identify potential liquidation events. Generally, high volume indicates strong interest and conviction in the price movement, while low volume indicates weak interest and indecision. During a liquidation event, you can expect to see spikes in volume, especially at key levels or breakouts. You can also use volume indicators, such as the volume profile or the on-balance volume, to measure the distribution and direction of volume.

5 Candlestick patterns

Candlestick patterns are specific combinations of one or more candles that convey information about the market sentiment and psychology. Candlestick patterns can help you identify entry and exit points, as well as potential reversals or continuations of the trend. During a liquidation event, you can look for candlestick patterns that indicate strong buying or selling pressure, such as engulfing, hammer, shooting star, or doji. You can also use candlestick patterns to spot divergences or convergences between price and indicators, such as the relative strength index or the moving average convergence divergence.

6 Fibonacci retracements

Fibonacci retracements are a technical analysis tool that uses the Fibonacci sequence, a series of numbers that reflect natural proportions and patterns, to measure the extent of a price correction or pullback. Fibonacci retracements can help you identify potential support and resistance levels, as well as target zones for the continuation of the trend. During a liquidation event, you can use Fibonacci retracements to estimate how far the price can retrace before resuming its original direction, or how far it can reverse before changing its trend. You can also use Fibonacci extensions to project future price levels based on the previous price movement.