Litecoin trading inside $3.37 trading range – Squeeze Alert pattern identified
Litecoin is (was) trading is a fairly tight trading range of a whopping $3.37 value area. It broke out on the 2nd, but now we’re in a squeeze. Will we breakout to continue higher or will we continue to sell off after this congestion?
Tight trading range for Litecoin
Litecoin is one of the major pairs that has generated some stronger than normal movement over the past few weeks, especially when compared against Bitcoin, Ethereum or Ripple. In fact, Litecoin has held a relatively stronger trading range for a longer period of time than any of the top 20 market cap coins. With the exception of a small dip and test lower that created new 2018 lows in early to mid-December, Litecoin has held on to an extremely important zone. The current trading range has been one that needs some close observation. Since January 11th, Bitcoin has been trading in a very tight $3.37 trading range – trading strictly sidewise and responding only to immediate geometric levels and not following through with any further upside or downside movement. However, there does appear to be a change occurring with this current range trading behavior.
On February 2nd, Litecoin opened at 32.34 and then traded higher for the rest of the day to close at 34.18, just below the high of the day at 34.66. The high of 34.66 is the highest high that Litecoin has formed since January 11th, 2019. It also represents the highest close since January 10th. The follow through trading on the next trading day, February 3rd, saw the formation of an inside bar with the high of the day at 34.53 and the low at 32.47. Inside bars form when a candlestick has both a lower high and a higher low than the prior candlestick. These kinds of candlesticks create powerful trading opportunities for traders. Generally, the strategy is to take a long trade when price breaks above the inside bar high and to take a low trade when price breaks below the low of the outer (sometimes called the ‘mother’) candlestick. Today’s trading is showing another candlestick being formed – which is another inside bar candlestick. If nothing changes between now (1715 CST) and the close at 1800 CST, then we should see a fairly bullish looking candlestick for the day with the open of the day also being the low, and the close slightly below the high of the day at 34.15.
What we could see is something called a ‘Squeeze Alert’ candlestick pattern. Michael C. Thomsett, author of Bloomberg Visual Guide to Candlestick Charting (part of the Bloomberg financial book’s series), identified this particular pattern as a very important one. According to Thomsett, the Squeeze Alert, ‘is one of the strongest reversal indicators’. He continued, writing that, ‘it is unusual for two respects. The first session of a color opposite the indicated reversal and sessions two and three may be of either color.’ There are two types of these Squeeze Alerts – a bull and a bear. It is difficult to determine the strength and direction of the current daily candlestick pattern setup. In the short term, it would be easy to assume that it is a bearish Squeeze Alert pattern. However, it may also be a bullish Squeeze Alert pattern given the small breakout nature from the range and also given the length of the crypto bear market. Regardless, the easiest direction for Litecoin is to the downside, so caution should be observed on any move below daily candlesticks of the 2nd and 3rd of February.