Major Breakout for Bitcoin incoming
An Inverse Head and Shoulder Pattern is currently on Bitcoin’s chart and indicates a bullish reversal. Significant primary resistance levels have been breached higher.
Bitcoin’s Inverse Head-And-Shoulder Pattern
The chart above may look a little odd. It’s a daily chart for Bitcoin with Japanese candlesticks, but I have removed the wicks from the candlesticks. Removing the wicks/shadows from the candlesticks in the cryptocurrency markets make the most sense to me because very often, the wicks are not indicative of any ‘honest’ price action or relevant trading zones. The close and open are overwhelmingly more accurate and consistent in cryptocurrencies. The Inverse Head-And-Shoulder Pattern is regarded as one of the most profitable bullish patterns in technical analysis. This is especially true if the pattern appears near significant market price swings – which is precisely where Bitcoin is currently trading.
The above chart is another daily Bitcoin chart. First, notice how the current daily candlestick has broken out above the neckline of the Inverse Head-And-Shoulder Pattern. Second, observe the thick green horizontal line at 7562.13 – the 3/8th Major Harmonic level. Major Harmonic levels are the strongest and most challenging levels for prices to move above or below. We can see evidence of this by observing how frequently Bitcoin has tested level as prior support and as current resistance. Since November 22nd, 2019, Bitcoin has spent eleven separate trading days against the 3/8th Major Harmonic. What happens when price breaks above 7562.13? It will move to test the next Major Harmonic, the 4/8th Major Harmonic at 10082.50. There will be some points along the way that will cause price to pause, areas where the ‘honesty’ of the move higher is tested. Those particular levels are at the 2/8th inner harmonic (8192.22), 4/8th inner harmonic (8822.31), and the 6/8th inner harmonic (9452.40). The most immediate question should be: How likely is it that Bitcoin will move higher?
We can use a series of indicators to help us determine the likelihood of a move higher being a sustained move. Quick note: We should only look at indicators when price is at an important price level. On the chart above, the lowest indicator is the %B oscillator. When the %B line crosses above the 0.8 level, that is a signal to pay attention to. What you are looking at is another view of a Bollinger Squeeze – a condition that can tell us a new trend is about to begin. If the %B is above 0.8, and the RSI is not overbought, then a breakout move higher is expected. The final filter to determine whether or not a move higher will be sustained is if there is a divergence between the RSI and the Composite Index, which there is not. Because the RSI found support against the level 40 area and has broken out above the level 50 zone, the overbought default level for Bitcoin returns to what it is in a bull market: the 80 to 90 level. Bitcoin has a considerable amount of higher price moves before the RSI reaches the 80 or 90 value area.