Cryptocurrency
Trading Bitcoin: Head & Shoulders Pattern Foreshadows Bearish Price Action
Hourly On the hourly chart above, Bitcoin is forming a tentative head and shoulders pattern. While a pattern means nothing until confirmation, the volume profile is following a typical head and shoulders pattern. Volume plays an important role in the progression of a head and shoulders pattern. For instance, head and shoulders patterns will usually […]
Hourly
On the hourly chart above, Bitcoin is forming a tentative head and shoulders pattern. While a pattern means nothing until confirmation, the volume profile is following a typical head and shoulders pattern. Volume plays an important role in the progression of a head and shoulders pattern. For instance, head and shoulders patterns will usually have the highest volume at the head. The next highest peak in volume will typically occur on the left shoulder, with the right shoulder having the least amount of volume leading up to the move. In this situation, the gradual decrease in volume from the head to the right shoulder demonstrates a reversal in trend momentum.
Still, a rookie trader would jump the gun and enter a short trade. However, the wise trader always waits for confirmation of a pattern, therefore, the neckline of the head and shoulders pattern must be purged with high volume. Since the head and shoulders pattern is forming on the hourly chart, it is not as significant as a longer time frame. Overall, the execution of this bearish pattern would take Bitcoin down to the $8.9k support level.
4 Hour
After being rejected at $9.5k, the MACD has experienced a bearish cross on the 4 hour chart.
Conclusion
While shorter term time frames are providing bearish signals, Bitcoin still has a large confluence of support at the $8.9k price level. A drop to this level has the potential to be an optimal ‘buy the dip’ situation as the bull market continues.