Hello traders! We hope you have been enjoying the end of year time, personally I cant wait for 2020 to be over, but considering Bitcoin has been absolutely dominating this year, I am feeling content that it is ending in the best way possible.
So let me give you some hope here for a great start to the new year with this potential fractal I have spotted on Bitcoin... but first, what is a fractal?
From the TradingView page on Fractals itself:
" Fractals are not only abundant in nature, they are also the building blocks of trends. They are simple yet important, repetitive formations, self-similar across different time frames and used by traders to identify or conform a trend (markets trend about 30% of the time) in order to trade it profitably. When broken apart, they exhibit the same characteristics as greater patterns or price movements. Fractals lag the market, because it takes time for them to form. "
So a fractal is a repetitive formation that can be identical or have almost identical characteristics, playing out repeatedly over time.
In this current fractal on Bitcoin i can spot 6 key similarities in the Price Action now and on December the 18th:
( Price Action is the term used to describe the way the Candlesticks react to certain areas marked on the chart )
-Each consecutive move, measured from the swing low, is around 25% total increase
-A Orderblock support area is formed towards the end of the thrust
-After the thrust, a Bull Pennant forms
-The Bull Pennant breaks out downwards, with a small Head & Shoulders formation heading under the Orderblock
-The downwards move generates liquidity for large buy orders, reversing the trend and failing the downwards breakout of both the Head & Shoulders and Bull Pennant patterns
-We see the price reclaim the Orderblock support before the real Bull Penannt breakout (upwards)
Dont understand any of that? No stress, i have you covered. From start to finish I will explain each individual formation I have spotted, and give a basic comparison of the similarities so you can understand the meaning of each.
1. Orderblocks
Click the below image for further education.
Order blocks are a form of Supply & Demand Zones and price can commonly find Resistance or Support on them. For those who are new to Technical Analysis ; "Support" is a area on the chart price and demand (buying pressure) increases from, with "Resistance" being the opposite, with price decreasing and sellers increasing from the latter. This makes them a great tool for finding exit or entry points for trades. Click the above image to understand how Orderblocks are drawn on the Cryptocurrency markets.
To draw and identify Order blocks first we must find important areas in the chart where price has reversed or broken market structure or and we are looking for small candle bodies in between these large movements to find our order blocks. A zone is drawn across them using the Rectangle tool.
When price revisits these areas it tends to react to it; giving traders a opportunity to capitalize on these movement's. They also are a useful tool for gouging Risk & Price targets as when one Order block is "claimed" price tends to head towards the next like a magnet; so they become ideal take profit & SL (Stop Loss) areas.
2. Bull Pennant
Click the below image for further education.
Bull Pennants are a little different to Bull Flags but are almost identical in appearance and are traded basically the same. The most important factor in identifying any flag or pennant pattern is the clear "staff" or "flagpole"; there should be a straight run upwards leading up to the pattern or it is not a valid pattern. After the straight run upward price starts to Zig Zag between two converging trendlines forming a tight wedge (it can be slanted, or even symmetrical) until the price "breaks out" above the upper trendline signifying a possible continuation in trend upwards.
Bull Flags and Bull Pennants have the highest success rate out of any pattern and work extremely well when paired with long term support & resistance areas such as Orderblocks. Enter at the invalidation point of the pattern which is usually the 5th touch (A), second entry on the bullish retest (B). Pennants that are “tighter” have higher success rates, look for patterns forming on top of long term resistances (not below) to increase probability of success also. Pattern height is measured and added to swing low before breakout for possible target.
Sometimes large size traders can generate liquidity by faking out under the pattern support as we can see on this current example. The liquidity generated by triggering stop losses underneath the pattern can fill large position sizes for whales and is a good indicator for a long once the price confirms support back inside the pennant.
Some key points:
• PRICE MUST MOVE STRAIGHT UPBEFOREHAND
• MIN 2 Touches each side on almost symmetrical looking wedge
• HIGH SUCCESS RATE
• BEST ENTRY IS often when price fakes out under support
• Pattern height is measured and added to swing low before breakout for possible target
3. Head & Shoulders
Click the below image for further education.
The Head & Shoulders Pattern is quite common on Bitcoin and have had great results on the higher timeframe charts. Price forms 3 distinct peaks usually after a strong uptrend, the left and right peak should have a similar height (shoulders), the middle peak (head) has to be the highest or this can not be a HS pattern . They should seem triangular in appearance but as long as it fits the main characteristics can still be a valid pattern. Volume usually paints the same pattern with the 3 peaks, strong volume on breakout increases success rate.
Here are the main characteristics:
• VOLUME MIMICS PATTERN
• 3 PEAKS, LEFT & RIGHT SIMILAR HEIGHT
• TRIANGULAR IN APPEARANCE
• FOUND AFTER UPTREND
• HIGH SUCCESS RATE
• CAN BE SLANTED
4. Pattern Failure / Fakeout
Click the same idea below and press PLAY to see a Head & Shoulders pattern failing.
Pattern Failure occurs when a chart pattern breaks out, fails to hit target, quickly reverses then rejects off that same breakout level back inside the pattern continuing in the opposite direction of the breakout. Pictured in the infographics in the post is a normal breakout on a Head And Shoulders Pattern while the right example shows Pattern Failure on the same pattern. Note how in the second example markedi n green the price actually comes back inside the "neckline" of the Head and Shoulders - signifying the potential of the pattern to fail the downwards breakout and head upwards instead.
If you revisit my Head & Shoulders idea, and press the Play button, you will see that the Head & Shoulders actually bounced off the 11200$ level before Bitcoins approach to $25,000, this was a great example of pattern failure.
Pattern failure can also be considered a Liquidity Grab or can be referred to as a “Fake Out”. Traders & Institutions with extremely large order sizes cannot just enter the market like the retail traders. Liquidity needs to be found and that is why it is quite common for the market to “stop hunt” before major moves. That is why sometimes it can be considered the best option to "Enter where your invalidation point is".
So now that you understand the key characteristics of this fractal, lets compare the similarities:
1. We have the creation of the Orderblock support area described above, followed by a formation of the Bull Pennant pattern.
2. Overview chart, here on the chart each respective similarity is marked on the chart. Note the Head and Shoulders marked, i will now show two further charts zoomed in showing the similarities.
3. The first fractal, zoomed in. You can clearly see the Orderblock support, the fakeout downwards out of the Bull Pennant and the Failure of the Head and Shoulders pattern before Bitcoin moved from $24,000 to $28,000.
4. The second potential fractal, zoomed in. You can clearly see the Orderblock support, the fakeout downwards out of the Bull Penannt and the Failure of the Head and Shoulders pattern, this could be a potential sign that the trend is going to repeat itself.
5. In this image we will compare the Bull Pennant itself and you can see how we can measure the pattern to get a potential price target.
6. This image shows the bull pennant hitting target
7. In this image you can see the newly formed Bull Pennant, the similarities in Price Action and how i have used this pattern to get a potential measurement. So lets see where this takes us.
Pretty interesting right? But we have to remember one important thing:
This fractal or any form of Technical Analysis is not a guarantee that something has a 100% certainty of happening - it is simply a way for us to measure risk, targets and spot the ideal entry and exit points of the market, So it is best to use risk management & have a basic plan or area where you consider your trade wrong, and place stop losses beneath this area or manually close the trade. So noting that, these two last charts are showing the price action I am looking for currently.
So we are looking for Bitcoin to respect the range support located at 26750-26420 before another upwards thrust. Just like we did on the first fractal.
1. This is my ideal situation, where we continue up trending then have one last "shakeout" at the last stand support area which would make an amazing entry (marked in green) to catch the potential continued bullish momentum of Bitcoin. We will need to break out of resistance at 28400 and also confirm support above this area, watch out for potential fake outs above this area.. many people can easily be trapped when buying resistance breakouts which is we are looking to enter after the SHAKEOUT and take profit earlier.
2. This is the worst case scenario, where we see Bitcoin CONFIRM its downtrend by rejecting off the key support area, marked in red.
Key Support Areas - 26750-26420 | 25930-25612
(If we lose 26512 and reject off this area then we could see the Shakeout, or potentially a larger downtrend)
I hope you enjoyed the analysis. Learning to trade patterns such as these can provide great opportunities if you understand price action and how to identify the key areas of the pattern that other traders and investors may be focusing on too, these areas become important psychological levels on the chart and you can see price react to these areas. I hope you have found this idea insightful, if you did you can show your appreciation by Liking & Commenting, thank you traders!
So let me give you some hope here for a great start to the new year with this potential fractal I have spotted on Bitcoin... but first, what is a fractal?
From the TradingView page on Fractals itself:
" Fractals are not only abundant in nature, they are also the building blocks of trends. They are simple yet important, repetitive formations, self-similar across different time frames and used by traders to identify or conform a trend (markets trend about 30% of the time) in order to trade it profitably. When broken apart, they exhibit the same characteristics as greater patterns or price movements. Fractals lag the market, because it takes time for them to form. "
So a fractal is a repetitive formation that can be identical or have almost identical characteristics, playing out repeatedly over time.
In this current fractal on Bitcoin i can spot 6 key similarities in the Price Action now and on December the 18th:
( Price Action is the term used to describe the way the Candlesticks react to certain areas marked on the chart )
-Each consecutive move, measured from the swing low, is around 25% total increase
-A Orderblock support area is formed towards the end of the thrust
-After the thrust, a Bull Pennant forms
-The Bull Pennant breaks out downwards, with a small Head & Shoulders formation heading under the Orderblock
-The downwards move generates liquidity for large buy orders, reversing the trend and failing the downwards breakout of both the Head & Shoulders and Bull Pennant patterns
-We see the price reclaim the Orderblock support before the real Bull Penannt breakout (upwards)
Dont understand any of that? No stress, i have you covered. From start to finish I will explain each individual formation I have spotted, and give a basic comparison of the similarities so you can understand the meaning of each.
1. Orderblocks
Click the below image for further education.
Order blocks are a form of Supply & Demand Zones and price can commonly find Resistance or Support on them. For those who are new to Technical Analysis ; "Support" is a area on the chart price and demand (buying pressure) increases from, with "Resistance" being the opposite, with price decreasing and sellers increasing from the latter. This makes them a great tool for finding exit or entry points for trades. Click the above image to understand how Orderblocks are drawn on the Cryptocurrency markets.
To draw and identify Order blocks first we must find important areas in the chart where price has reversed or broken market structure or and we are looking for small candle bodies in between these large movements to find our order blocks. A zone is drawn across them using the Rectangle tool.
When price revisits these areas it tends to react to it; giving traders a opportunity to capitalize on these movement's. They also are a useful tool for gouging Risk & Price targets as when one Order block is "claimed" price tends to head towards the next like a magnet; so they become ideal take profit & SL (Stop Loss) areas.
2. Bull Pennant
Click the below image for further education.
Bull Pennants are a little different to Bull Flags but are almost identical in appearance and are traded basically the same. The most important factor in identifying any flag or pennant pattern is the clear "staff" or "flagpole"; there should be a straight run upwards leading up to the pattern or it is not a valid pattern. After the straight run upward price starts to Zig Zag between two converging trendlines forming a tight wedge (it can be slanted, or even symmetrical) until the price "breaks out" above the upper trendline signifying a possible continuation in trend upwards.
Bull Flags and Bull Pennants have the highest success rate out of any pattern and work extremely well when paired with long term support & resistance areas such as Orderblocks. Enter at the invalidation point of the pattern which is usually the 5th touch (A), second entry on the bullish retest (B). Pennants that are “tighter” have higher success rates, look for patterns forming on top of long term resistances (not below) to increase probability of success also. Pattern height is measured and added to swing low before breakout for possible target.
Sometimes large size traders can generate liquidity by faking out under the pattern support as we can see on this current example. The liquidity generated by triggering stop losses underneath the pattern can fill large position sizes for whales and is a good indicator for a long once the price confirms support back inside the pennant.
Some key points:
• PRICE MUST MOVE STRAIGHT UPBEFOREHAND
• MIN 2 Touches each side on almost symmetrical looking wedge
• HIGH SUCCESS RATE
• BEST ENTRY IS often when price fakes out under support
• Pattern height is measured and added to swing low before breakout for possible target
3. Head & Shoulders
Click the below image for further education.
The Head & Shoulders Pattern is quite common on Bitcoin and have had great results on the higher timeframe charts. Price forms 3 distinct peaks usually after a strong uptrend, the left and right peak should have a similar height (shoulders), the middle peak (head) has to be the highest or this can not be a HS pattern . They should seem triangular in appearance but as long as it fits the main characteristics can still be a valid pattern. Volume usually paints the same pattern with the 3 peaks, strong volume on breakout increases success rate.
Here are the main characteristics:
• VOLUME MIMICS PATTERN
• 3 PEAKS, LEFT & RIGHT SIMILAR HEIGHT
• TRIANGULAR IN APPEARANCE
• FOUND AFTER UPTREND
• HIGH SUCCESS RATE
• CAN BE SLANTED
4. Pattern Failure / Fakeout
Click the same idea below and press PLAY to see a Head & Shoulders pattern failing.
Pattern Failure occurs when a chart pattern breaks out, fails to hit target, quickly reverses then rejects off that same breakout level back inside the pattern continuing in the opposite direction of the breakout. Pictured in the infographics in the post is a normal breakout on a Head And Shoulders Pattern while the right example shows Pattern Failure on the same pattern. Note how in the second example markedi n green the price actually comes back inside the "neckline" of the Head and Shoulders - signifying the potential of the pattern to fail the downwards breakout and head upwards instead.
If you revisit my Head & Shoulders idea, and press the Play button, you will see that the Head & Shoulders actually bounced off the 11200$ level before Bitcoins approach to $25,000, this was a great example of pattern failure.
Pattern failure can also be considered a Liquidity Grab or can be referred to as a “Fake Out”. Traders & Institutions with extremely large order sizes cannot just enter the market like the retail traders. Liquidity needs to be found and that is why it is quite common for the market to “stop hunt” before major moves. That is why sometimes it can be considered the best option to "Enter where your invalidation point is".
So now that you understand the key characteristics of this fractal, lets compare the similarities:
1. We have the creation of the Orderblock support area described above, followed by a formation of the Bull Pennant pattern.
2. Overview chart, here on the chart each respective similarity is marked on the chart. Note the Head and Shoulders marked, i will now show two further charts zoomed in showing the similarities.
3. The first fractal, zoomed in. You can clearly see the Orderblock support, the fakeout downwards out of the Bull Pennant and the Failure of the Head and Shoulders pattern before Bitcoin moved from $24,000 to $28,000.
4. The second potential fractal, zoomed in. You can clearly see the Orderblock support, the fakeout downwards out of the Bull Penannt and the Failure of the Head and Shoulders pattern, this could be a potential sign that the trend is going to repeat itself.
5. In this image we will compare the Bull Pennant itself and you can see how we can measure the pattern to get a potential price target.
6. This image shows the bull pennant hitting target
7. In this image you can see the newly formed Bull Pennant, the similarities in Price Action and how i have used this pattern to get a potential measurement. So lets see where this takes us.
Pretty interesting right? But we have to remember one important thing:
This fractal or any form of Technical Analysis is not a guarantee that something has a 100% certainty of happening - it is simply a way for us to measure risk, targets and spot the ideal entry and exit points of the market, So it is best to use risk management & have a basic plan or area where you consider your trade wrong, and place stop losses beneath this area or manually close the trade. So noting that, these two last charts are showing the price action I am looking for currently.
So we are looking for Bitcoin to respect the range support located at 26750-26420 before another upwards thrust. Just like we did on the first fractal.
1. This is my ideal situation, where we continue up trending then have one last "shakeout" at the last stand support area which would make an amazing entry (marked in green) to catch the potential continued bullish momentum of Bitcoin. We will need to break out of resistance at 28400 and also confirm support above this area, watch out for potential fake outs above this area.. many people can easily be trapped when buying resistance breakouts which is we are looking to enter after the SHAKEOUT and take profit earlier.
2. This is the worst case scenario, where we see Bitcoin CONFIRM its downtrend by rejecting off the key support area, marked in red.
Key Support Areas - 26750-26420 | 25930-25612
(If we lose 26512 and reject off this area then we could see the Shakeout, or potentially a larger downtrend)
I hope you enjoyed the analysis. Learning to trade patterns such as these can provide great opportunities if you understand price action and how to identify the key areas of the pattern that other traders and investors may be focusing on too, these areas become important psychological levels on the chart and you can see price react to these areas. I hope you have found this idea insightful, if you did you can show your appreciation by Liking & Commenting, thank you traders!
Comment:
Playing out pefectly so far - Watch out for selling pressure here at the Resistance area.
Comment:
Congratulations all who followed, Make sure you exercise a plan to secure your profits and manage your risk.
Comment:
Almost at the target area! :) I would definately secure some profits! Congrats
Comment:
Unstoppable!!
