BTC current candlestick patterns: Morning star vs. Bull Pennant

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Hi all,

I've been getting a few DM's and emails on what I think of the current price action. In past videos and written publications I have said that things got into extreme overbought territory on the shorter time frame charts. I mentioned that things could trade sideways and be a little choppy for a few days while momentum rolls back to neutral territory. If the bulls step up you'll see reactivation of the trend as momentum neutralizes before the next push.

I wanted to put out a quick educational content on two candlestick patterns and how to handle them. On the daily chart you can see a risk of Bitcoin forming a bearish morningstar reversal. However, on the 2 hour you can see a Bull Flag . So which is it? Are the bulls or bears winning?

Classical Chart Patterns:
1. Morning star Pattern - this can be a bull or bear reversal pattern. The current situation is perfectly setup for a reversal if the bears capitalize. It's a 3 candle chart pattern, which I have highlighted below. #1 - You have a bull impulse candle, followed by #2 a doji and then 3rd candle has to break below more than 50% of the bull candle #1. The doji candle looks like a star in this case and signals that the market has uncertainty where it's going as momentum is neutral. So the morning star reversal is confirmed if BTC were to break below the level I have highlighted in the chart. Which happens to be our buy zone. Now of course worst case scenario is that you put your stop loss just under this level and the market reverses only to stop you out and reverses back to a bull. This is where you need to pick a side and accept the fact that you maybe wrong and manage your capital losses. I'm keeping my stop at $3300 for now until I see further breakdowns below the market mainly because I can afford to take such a loss (less than 2% draw down on my portfolio). However you need to do the math and figure out what is the maximum hit you can handle without going over 2% draw down. Depending on your trade size maybe you can afford to keep your stop in safe territory with me because you didn't take on too much risk or you might have to keep it around that $3,500 level. Do the math and figure it out.

2. Bull Pennant Many of you already know the Bull Flag and Pennant pattern here. On the BTC 2 hour chart frame you can see this bull pennant forming. Ideally BTC is supported at $3,600. The way you measure the profit zone on such a pattern is measuring the length of the flag pole and then adding that back on top of the flag. This puts us right at $4,000. Bear flags you do the reverse.

Please do your own research and google these patterns and more to build out your knowledge base as a technical trader.


Comment: The daily Morningstar reversal pattern is now invalid with the close of the 3rd candle. BTC is really trying to break free of the 50 Day SMA (orange trend line). If it does $3,800 should be cleared on our way out of the descending channel to test $4,000, which is the bull pennant target as well as key psychological resistance. On the flip side BTC needs to hold $3,500 near term or we face a new wave of selling pressure back to the lower 3k's. Let's see what the charts bring us tomorrow.

Nice analysis.
+2 Reply
@mc_peewee, cheers bud
BTCUSD H4 Correction up. Checkout the idea detail's and all the update's for the complete picture.
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