Bitcoin managed to increase by a total of almost 10% yesterday (April 2, 2020) to reach as high as $7,300 during the day. However, it quickly went on to reverse and actually ended up closing the day beneath the $6,800 which is the upper boundary of a triangle that we have been watching.
So, what is going on?
Well, let us take a look into this triangle that we have been tracking over the past fortnight or so and analyze how Bitcoin reacted around the boundary of the consolidation pattern.
NOTE: A consolidation pattern is basically a period of sideways movement in which Bitcoin is trading between the confines of 2 boundaries. This specific consolidation pattern is known as an ascending triangle in which a flat upper trend line and a rising support trend line form the boundaries of the triangle. Typically, they break toward the upside as shown in the pattern example below;
BTCUSD - 4HR CHART
Looking at the chart above, we can clearly see the triangle that is marked by the two pink lines. The cryptocurrency has bounced anytime it reaches the lower boundary of the triangle but has met resistance at the upper boundary of the triangle.
The upper boundary is exactly at the $6,800 price level. For the past 2-weeks, anytime Bitcoin attempted to break above this upper boundary resistance the cryptocurrency always seemed to fail and closed beneath it.
In yesterday’s trading session, we can see that bitcoin increased by 10% which allowed it to rise and break above the upper boundary as it reached almost as high as $7,300. However, it quickly then went on to reverse as the sellers stepped back in and pushed the price of Bitcoin lower.
The sellers continued to drive Bitcoin lower and made sure that they closed the 4HR candle back beneath the resistance at $6,800 which effectively prevented any breakout from happening.
Typically, when we trade triangle patterns, we wait for the market to break out in one direction and then place trades in the direction of the breakout. In this case, we would be placing long trades. However, what happened yesterday is a classic example of why we must wait for the candle to CLOSE above the boundary. The break out of the triangle is the first signal that we have a strong bullish move on our hands BUT the close of the candle is what acts as the confirmation that it is not a false signal.
If we are too impatient and end up placing trades before the candle closes we end up getting burned like what would have happened yesterday. This is shown on the chart below where the yellow circles show periods in the market where there was a false breakout signal in which the market climbed above the triangle but eventually went on to close beneath the upper boundary.
We can see that in today’s (April 3rd, 2020) trading session, the market has broken above the upper boundary of the triangle and has finally produced a CLOSING candle to confirm that we have indeed broken out of this consolidation pattern. This is represented by the green circle in the chart above.
Depending on your trading style, the confirmation can come from either a close on the 4HR chart or the daily chart. If we are looking for confirmations on any timeframe lower than this then we are likely to be receiving false signals, especially when the volatility of the market is as high as it is right now.
Right now, we have received a confirmation on the 4HR chart but still are yet to receive the daily candle close confirmation - which will come at the end of the trading day.
Let us take a look at the market from a greater perspective on the daily chart.
BTCUSD - DAILY CHART - MEDIUM TERM
What Has Been Going On?
Looking at the daily chart above, we can see the impact that the March market collapse had on the market when it dropped by 48% on March 12th in Bitcoin’s worst trading day in recent years. The cryptocurrency dropped from a high of around $8,000 to fall into the support at the $4,825 level.
The support here was provided by a downside 1.272 Fib Extension level and was further bolstered by a 6 month old falling trend line.
The cryptocurrency managed to rebound from here as it started the period of consolidation that is marked by the pink lines - making the ascending triangle pattern.
Before breaking above this triangle, we can see that the cryptocurrency had made numerous attempts to break above the upper boundary but failed on each and every attempt.
Even in yesterday’s trading session, we can see the Bitcoin climbing higher to reach $7,300 but failing to overcome the upper boundary of the triangle by the time the candle came to a close.
Today, Bitcoin is once again trading above the upper boundary of this triangle but is struggling at the $7,000 region where resistance is provided by a 1.272 Fib Extension level (drawn in blue). Still, the candle is yet to close and we must be wary that the market might indeed reverse over the course of the day to close back beneath the triangle.
Again, this is why we always should wait for a CLOSE of the candle to confirm that we have indeed broken out from the trading pattern.
Are We Bullish Or Bearish?
Right now, we are still neutral. Although the market is above $6,800 it is still yet to close above the level. If today’s candle (or even tomorrow’s candle) manages to close above the $6,800 then we can consider the market as bullish.
We are now pretty much a while away from being bearish. To turn bearish we would need to drop back into the triangle and then continue to fall beneath the lower boundary of the triangle. A close beneath $6,000 would pretty much confirm a bearish short term trend moving forward.
Where Can We Go From Here?
So, where can we go from here? Well, it all depends on the close of the candle today. If we close above $6,800 but still remain beneath $7,000 then the first level of resistance will be located at $7,000.
Above $7,000, resistance is located at $7,225 which is provided by a bearish .5 Fibonacci Retracement level that is measured from the March high to the March low. If the buyers continue to drive the market above $7,300, resistance lies at $7,570, $7,700 (1.618 Fib Extension), and $8,000 (bearish .618 Fibonacci Retracement level).
Above this, resistance lies at $8,200, $8,400, $8,600 (1.618 Fib Extension - green), and $9,000. This is then followed with resistance at $9,116 (bearish .786 Fib Retracement) which is pretty much the March 2020 highs.
Toward the downside, the first level of strong support lies at $6,800 - the upper boundary of the triangle that had previously provided much resistance (now turned to support).
Beneath this, support lies at $6,400, $6,200, and the lower boundary of the triangle.
If we somehow fall beneath the triangle, support lies at $6,000, $5,750, $5,500, $5,200, and $5,000.
What Are The Technical Indicators Showing?
The RSI has managed to break above the 50 level this week to indicate that the buyers have started to take control of the market momentum. This is a good sign that the bulls are pretty much back in town. If it can remain above 50 and continue higher then the bullish momentum will be growing and we should certainly see Bitcoin reaching $8,000 sometime soon.
One thing to remain cautious about is the Stochastic RSI as it trades in overbought conditions. It can trade in overbought conditions for extended periods of time, however, if it produces a bearish crossover signal this will be the first sign that the selling pressure is starting to fade a little bit.
The closing price of today’s candle will be crucial to dictate where we are headed toward next. If we can manage to close above the $6,800 level this will indicate that we have finally broken out of the period of the previous consolidation and should be able to head higher. However, the $7,000 resistance will also be a crucial level to break up above if we would like to see Bitcoin reaching $8,000 at some point during April.
The important thing to remember is to not jump the gun too quickly. Always wait for the candle closes, on whatever time from you are looking at (4HR or Daily), before committing to any trades moving forward.