Bitcoin price is struggling after failing to make it above resistance last month. Combined with the recent pressure on the crypto market applied by the US SEC, things aren’t looking great for bulls.
However, the correction has stopped precisely at a key level that could indicate a “throwback” is in process. If confirmed, BTCUSD could trade above $40,000 per coin in the near future.
A Closer Look At The Technical Bottom Formation In Crypto
The study of technical analysis uses past price history to predict probabilities in future market movements. Certain patterns have been discovered time and time again, that produce reasonably replicable results. From the size or shape of the pattern, analysts can derive roughly how far the associated breakout should travel.
Bitcoin price action over the last year has formed what appears to be a technically flawless inverse head and shoulders pattern. The inverse head and shoulders is a bullish reversal pattern that appears at the bottom of a trend as it change direction. It consists of a left shoulder, head, a right shoulder, and a neckline. The head must be lower than each shoulder, and the neckline is of extra importance, because that’s where the abundance of orders are associated.
What Exactly Is A Bitcoin Throwback, And Why Does It Matter?
A throwback occurs after a breakout of the neckline, when the market isn’t convinced of the bullish move. The neckline holding is a sign to others that the pattern could confirm, and more traders pile in creating a breakout and strong move higher. When using the example as a comparison, the resulting breakout could reach as much as over $40,000 per BTC.
When bullish patterns fail, the result is called a “busted” pattern and can cause a further crash as long traders are stopped out below the neckline. Stop loss levels are placed below the neckline, because a confirmed pattern will not breach below this point. Therefore, for the pattern to confirm, holding the neckline is especially critical. Will we see this bullish chart pattern ultimately confirm, or fail?
This chart appeared in issue #7 of CoinChartist VIP alongside a dozen other exclusive crypto charts.