Bitcoin's - not so - Unexpected Rally: Two Patterns, Two Trades
Dear Esteemed TV Members,
Before diving into the Bitcoin price analysis, it's crucial to emphasize that price alone doesn't tell the whole story. A bullish price forecast doesn't automatically translate into a secure investment. I want to clarify that I recently sold most of my BTC holdings due to liquidity concerns. The crypto market can be unpredictable, and a substantial increase in demand, which we witnessed, can lead to liquidity challenges. It's essential to consider various factors when making investment decisions. Let me share my insights into BTC's price and what indicators hinted at the recent developments on the chart.
The two positions on the chart are the pattern indications we'll focus on in this tutorial. I'll highlight two patterns that foretold BTC's bullish trajectory, but please note that other patterns and indicators could have pointed in the same direction. These are just two examples that caught my attention.
Rounding Bottom
Let's start with the first position, a trade from October 14th to October 24th, aptly named the Rounding Bottom. As the name suggests, this pattern resembles the lower half of a circle or an oval. Rounding Bottoms typically emerge after extended bearish trends. In bearish trends, bearish candles tend to outweigh the bullish ones, leading to increased volatility. The heightened volatility often results in corrective bullish candles that might surprise inexperienced investors. Many people mistake these bullish candles for a full reversal or overextend their positions. However, it's essential to remember that strong trends, whether bullish or bearish, can be quite volatile.
Strong trends also tend to form bottom formations. While these bottoms can take various shapes, the Rounding Bottom is the focus here. One insight to observe is the decreasing candle sizes. After October 11th, the volatility decreased, leading to both smaller bearish and bullish candles. It indicates a change in the trend, though not necessarily a bullish one.
Another critical aspect to consider is decreasing volume. Reduced volume doesn't automatically signify a reversal. Bottom formations can include scenarios where the volume spikes before a sharp price increase. However, the decreasing volume in this context indicated a shift.
In addition to reduced volatility and volume, the candles started to form the characteristic oval structure. The price also stabilized on multiple Exponential Moving Averages (EMAs). To identify the pattern as a Rounding Bottom, I had to monitor the candles for a few more days, relying on not only their appearance but also considering volatility, volume, liquidation data, and EMA analytics.
The Rounding Bottom aligning with these indicators provided a degree of confidence in its bullish nature. However, the job was far from done. My initial target price was set based on a resistance trendline drawn from previous local tops, depicted on the chart in purple. AI analysis indicated that the price was likely to reach at least this level. Indeed, it did, and while the rally could have concluded there, the absence of clear top formations and the price stabilizing above EMAs 20, 50, 100, and 200 prompted me to keep the long position until October 24th.
Broadening Wedge
During this period, my pattern recognition algorithm identified a signal of a different formation between October 24th and 27th, a Broadening Wedge. Now, a different formation doesn't necessarily signify a reversal. Broadening Wedges often indicate an escalation of the existing trend, which, after the Rounding Bottom, had been bullish. This aligns with the general behavior expected in textbook examples.
Between these two long positions, there's a notable period where I refrained from taking a position. I also closed any existing positions due to the limited number of candles to identify any pattern with confidence. It's important to note that the more time you can observe a pattern forming, the higher the probability of getting it right. Jumping to conclusions based on just a few candles might lead to incorrect assessments.
In both the Rounding Bottom and Broadening Wedge, I excluded numerous other patterns. When analyzing the market, it's vital to exclude multiple possibilities before settling on a particular pattern. This increases the chances of accurately identifying the pattern in question.
This tutorial offers insights into pattern recognition, target price setting, and stop loss selection. However, remember that these are potential approaches to expand your understanding. Historical results don't guarantee future results. While these patterns proved helpful in this instance, other investors might have identified different patterns leading to similar or even better outcomes.
"Too long to read, but I want to learn"
tl;dr I found a Rounding Bottom, then a Broadening Wedge. Rounding Bottom shifted the trend from bearish to bullish, and Broadening Wedge continued the bullish trend. It's only a short-term insight from the past and doesn't necessarily reflect my long-term view about the asset or any future view.
Kind Regards,
Ely
Before diving into the Bitcoin price analysis, it's crucial to emphasize that price alone doesn't tell the whole story. A bullish price forecast doesn't automatically translate into a secure investment. I want to clarify that I recently sold most of my BTC holdings due to liquidity concerns. The crypto market can be unpredictable, and a substantial increase in demand, which we witnessed, can lead to liquidity challenges. It's essential to consider various factors when making investment decisions. Let me share my insights into BTC's price and what indicators hinted at the recent developments on the chart.
The two positions on the chart are the pattern indications we'll focus on in this tutorial. I'll highlight two patterns that foretold BTC's bullish trajectory, but please note that other patterns and indicators could have pointed in the same direction. These are just two examples that caught my attention.
Rounding Bottom
Let's start with the first position, a trade from October 14th to October 24th, aptly named the Rounding Bottom. As the name suggests, this pattern resembles the lower half of a circle or an oval. Rounding Bottoms typically emerge after extended bearish trends. In bearish trends, bearish candles tend to outweigh the bullish ones, leading to increased volatility. The heightened volatility often results in corrective bullish candles that might surprise inexperienced investors. Many people mistake these bullish candles for a full reversal or overextend their positions. However, it's essential to remember that strong trends, whether bullish or bearish, can be quite volatile.
Strong trends also tend to form bottom formations. While these bottoms can take various shapes, the Rounding Bottom is the focus here. One insight to observe is the decreasing candle sizes. After October 11th, the volatility decreased, leading to both smaller bearish and bullish candles. It indicates a change in the trend, though not necessarily a bullish one.
Another critical aspect to consider is decreasing volume. Reduced volume doesn't automatically signify a reversal. Bottom formations can include scenarios where the volume spikes before a sharp price increase. However, the decreasing volume in this context indicated a shift.
In addition to reduced volatility and volume, the candles started to form the characteristic oval structure. The price also stabilized on multiple Exponential Moving Averages (EMAs). To identify the pattern as a Rounding Bottom, I had to monitor the candles for a few more days, relying on not only their appearance but also considering volatility, volume, liquidation data, and EMA analytics.
The Rounding Bottom aligning with these indicators provided a degree of confidence in its bullish nature. However, the job was far from done. My initial target price was set based on a resistance trendline drawn from previous local tops, depicted on the chart in purple. AI analysis indicated that the price was likely to reach at least this level. Indeed, it did, and while the rally could have concluded there, the absence of clear top formations and the price stabilizing above EMAs 20, 50, 100, and 200 prompted me to keep the long position until October 24th.
Broadening Wedge
During this period, my pattern recognition algorithm identified a signal of a different formation between October 24th and 27th, a Broadening Wedge. Now, a different formation doesn't necessarily signify a reversal. Broadening Wedges often indicate an escalation of the existing trend, which, after the Rounding Bottom, had been bullish. This aligns with the general behavior expected in textbook examples.
Between these two long positions, there's a notable period where I refrained from taking a position. I also closed any existing positions due to the limited number of candles to identify any pattern with confidence. It's important to note that the more time you can observe a pattern forming, the higher the probability of getting it right. Jumping to conclusions based on just a few candles might lead to incorrect assessments.
In both the Rounding Bottom and Broadening Wedge, I excluded numerous other patterns. When analyzing the market, it's vital to exclude multiple possibilities before settling on a particular pattern. This increases the chances of accurately identifying the pattern in question.
This tutorial offers insights into pattern recognition, target price setting, and stop loss selection. However, remember that these are potential approaches to expand your understanding. Historical results don't guarantee future results. While these patterns proved helpful in this instance, other investors might have identified different patterns leading to similar or even better outcomes.
"Too long to read, but I want to learn"
tl;dr I found a Rounding Bottom, then a Broadening Wedge. Rounding Bottom shifted the trend from bearish to bullish, and Broadening Wedge continued the bullish trend. It's only a short-term insight from the past and doesn't necessarily reflect my long-term view about the asset or any future view.
Kind Regards,
Ely
Comment:
And after ten days, if you extend the trendlines, the price still respects the wedge pattern. Although wedges could break in either direction, the height of the wedge can estimate the volatility over time. As far as the trendlines are unbroken, the price can bounce from the support (bottom trendline) and down from the resistance (top trendline). This information might not be complete, but it helps you set your stop loss and design your scalping trades.
Comment:
While I won't be taking a position in this educational idea, it's worth noting that support trendlines tend to push prices up according to statistics. Although breakdowns are possible, this particular idea doesn't provide any signals that would suggest such an outcome. If you know more, please expand our knowledge.
Comment:
BTC continues to stay in the wedge. Now, the pattern has been standing for 12 days without invalidation. If you put your long stop loss below the wedge's trendline as textbooks suggest, you may want to move it higher as the trend is moving higher to keep it close to the trendline from below and optimize your trailed gains.
Comment:
BTC's price remains within the pattern I outlined previously. While I maintain a neutral stance as per the guidelines of this publication, it's noteworthy that BTC has been confined to the lower half of the wedge's halving trendline. This could signal a potential bearish trend, although a definitive breakdown has yet to materialize.
In this educational piece, I haven't predicted the future price of this occurrence. Nevertheless, I find it unlikely that Bitcoin's decline aligning precisely with the lower edge of the wedge is a mere chance. It serves as an illustration of how chart patterns, as mentioned, not only have the potential to forecast future trends but also delineate the boundaries for strategic trades. These are points where you can position your entries, establish target prices, and set stop losses.