1. Trend line from the lead in phase is a 30 degree angle (should be between 30-45)
2. Trend line from the bump (not pictured) is 51 degrees (should be between 45-60)
3. Volume spikes on the bump candle.
4. Volume strongly increases during the bump phase.
5. The growth during the bump phase (+27%) is at least twice that of the bump (+10%).
6. Price returns to the 30 degree trend line
This ladies and gents is real technical analysis. I remember reading about it in the Encyclopedia of Chart Patterns by Bulkowski. 672 brilliant yet boring pages using decades of analysis. I bet just about everyone on the front page of TV doesn't even own it let alone read it but that won't stop them from shilling their parabolic curves and elementary trend lines with no substantive data to back their OPINIONS. This chart is not my opinion, it's a rare intraday pattern that I recognized with an 81% success rate. Typically this is used with daily candles and takes months to develop and execute. However, the structure works on both the 4 and 8 hour time frames and adjustments have to be made for crypto trading vs. traditional stocks.
The second peak is confirmed with the return to the 30 degree trend line. I'm aware that it didn't actually touch it but in crypto adjustments must be made to honor the overall structure and in this case it touched a minor trend line that I marked with a red dotted line.
To stay valid the next peak should top out between $11,500-$12,500.
A 3rd peak was unnecessary and the price broke below the 30 degree trend line and now the downhill run begins.
Bulkowski states that 55% of the time the price would find support and reverse after a 30-40% drop from the peak. 14% of the time it would drop as much as 50%. I went ahead and marked those zones in the snapshot.
The 30 degree trend line that acted as support has now turned resistance. If it breaks above, it should form a third peak according to the previous guidelines and retest the 30 degree support. If rejected, expect a sharp sell off (dead cat bounce from the $10k reversal) into the reversal zones. I noted the volume on selling vs. reversal candles and it's quite clear the market sentiment is bearish.
It appears Mr. Bulkokwski's charts are spot on. Not bad for a book that was released in 2000.
I deleted my original chart by accident (actually it was open on 2 computers and the one I updated didn't autosave) so I had to remake the chart. I wish I didn't have to because I would have been able to publish it before the drop but then again if you've been reading my updates it was quite clear that the 3rd peak would crest between $11,500 and $12,500.
The good news about having to redo the chart is that I added the trend line degrees for the 30 and 51 degree trend lines and I drew the lead in phase channel in orange. As you can see BTC reversed off of the upper trend line of the channel before heading up to make the 3rd peak. As of this update, BTC has dropped below the 30 degree trend line and I believe it has farther to fall.
While BTC did technically reverse in the 55% chance zone, it was only the wick of 1 candle and didn't close in the zone. More importantly, the next chapter in Bulkowski's Encyclopedia of Chart Patterns is the Cup and Handle formation. It's no coincidence he chose that formation for the next chapter because the Bump and Run Reversal Top is likely to transition into a cup and handle formation. The reasoning is that BTC will drop into the support zone, find support and consolidate creating a frying pan bottom before making its way back up to $13k for a retest. Beautiful, isn't it?
Remember, Pros have a plan and anticipate where the market will be whereas amateurs react and therefore are always trading a step or two behind.
On this snapshot I drew two relevant formations. The first is a broadening descending wedge in purple. Despite what most people think it's a consolidation pattern, not a reversal pattern. Bulkowski's criteria is as follows:
1. Formation looks like a downward facing megaphone with two down sloping trendlines outlining the price action.
2. Both trendlines slop downward with the lower trendline having a steeper slope.
3. Each trendline requires two distinct touches to validate the trendline.
4. Volume usually rises over the length of the formation, however it's not always required.
5. Once the price has broken outside either of the trendlines, expect further continuation with the trend.
6. A partial decline is when price touches the top trendline, moves down then turns around and heads higher without coming close to the lower trendline. An upside breakout usually follows a partial decline.
7. This formation will fail 37% of the time meaning a breakout above or below invalidates the pattern.
Currently an argument can be made that we're in the process of a partial decline that could lead to a breakout. However, low volume and a high failure rate dictates that price must break out before any buys are made. More importantly, the 30 degree trendline is now acting as resistance and sits above the breakout, making buying the breakout even more dangerous. Given that the bump and run reversal top formation we've been following for the last week trumps the upside potential of making any trades until price clears the Right Angled Descending Wedge (pink) which has a 19% chance that price will break above $12,500.
Anyone who is calling for BTC to move to $14k right now is an inexperienced, reckless trader who doesn't understand capital preservation and probabilities. BTC has about a 7% chance of success to break above two bearish wedges. Only fools take those odds which is why so many "top" authors on the front page are a joke with their parabolic curves and lack of charting and technical analysis fundamentals. Combine that with the fact that the bump and run reversal top is still very much in play (series of declining peaks and not a single reversal or parallel peak) there's no reason to rush to buy in at this level. Patience is key which is why my idea has charted for a week according to plan while "top" authors are releasing daily ideas with updated targets that contradict their ideas from a day or two prior. I call them ADHD traders and their lack of patience to let the pattern develop is why they're constantly flip flopping and don't have a clue as to what will happen next.
P.S. I love how they always say "anything can happen" to cover themselves. Sure, the price could go up or go down. What genius made that call? LOL! With wise predictions like that, the only call that's wrong is if the market stays exactly flat. Note how not a single one of them can put a probability with their predictions using real world market data and I'll tell you why: they're winging it instead of studying the work of greater and more experienced charting minds. Imagine the ego they must have thinking they found a better way to trade the market vs those who have 20-30+ years of experience.
The partial decline I noted yesterday came through and as anticipated hit resistance at the 30 degree trend line. I zoomed in on the chart to show you the ROIs for buying the breakouts of the purple broadening descending wedge and the 30 degree trendline. Now compare those gains to the potential losses if BTC corrects to the upper and lower lead in phase trendlines. The range is +6% to -29%. Not a good risk:reward ratio if you ask me which is why I buy in the support zone or after the breakout above $12.5k.
It's important to remember that a quick dip isn't a correction. A proper correction means the price drops until it finds support and stabilizes over the course of many candles, rounding the bottom before moving up to the next level.
Based on my experience in the market and the probabilities given by Bulkowski, this move upward is a shake out before reversing and having a proper correction below. Buy volume leading into this sharp move up was dismal and now that it's hit resistance, expect price to loiter around for a while before the down hill trend resumes.
If I'm mistaken then I'll simply buy the breakout at $12.5k and look to make a quick profit when BTC retests the first peak. Not bad huh? It's either quick profit or a more attractive reentry. Either way I've reduced my risk and profited quickly or maximized upside while limiting downside potential and that is the foundation to successful trading.
Price broke above the $12.5k resistance but failed to confirm on the 8 hour candle. Strong sell volume dropped the price under $12.5k then weak buy volume slowly bringing it back above $12.5k suggests a consolidation below $12.5k will occur. I charted a new upper downtrend angle in yellow (19 degrees) and drew a symmetrical 19 degree bottom trendline to accompany it using the partial decline baseline support (loose but it's there). The yellow triangle is an ideal setup for day trading/swing trades over the next few days.
There is a possibility (unlikely in my opinion) over the next 48 hours for BTC to explode upwards and retest the 1st peak however that's a risk I'm not willing to take given the recent price action. Capital preservation is even more important than chasing gains at the top of an improbable move and I'm perfectly fine with day trading small gains until a better setup comes along.
For now, the next move to watch is to see if BTC finds support within the yellow triangle and if it does then that would open the door to made some trades within that structure. It is not an area for long posi
In the meantime check out my latest XRP analysis. I commented in my last update that I didn't buy the BTC breakout because I didn't like the risk associated with it despite the technicals and candlesticks indicating breakout. I trade setups that have a strong possibility of profit while minimizing risk and in that spirit I present to you this:
Price failed to sustain the breakout above $12.5k and headed back into the anticipated trading zone where price reversed off of the baseline that supported BTC's wave up since the sub $10k drop a few days ago.
Sell volume is much stronger than buy volume so that's something to keep an eye on as price tries to break above $12.5k
After the breakout/fakeout above $12.5k sell volume overpowered the buyers and price fell right into the anticipated trading zone with all of the candles closing within the symmetrical triangle that was projected. Right now price is trading right under the 50MA but it's likely to break above as the 50MA has acted more of a speed bump rather than a point of reversal.
We'll see how high BTC rebounds from this. Currently I have $12.2k - $12.5k as a reversal zone though I'm ready to dump at a moment's notice if I sense danger because looking at the daily candles the June 10th trendline (currently around ~$10,720) is back in play.
$10,700 is very much in play for BTC. When I was making the anticipated trading zone I went with a symmetrical structure. Look at the angle of the trendline from the lead in phase that I highlighted with the white arrow on the left side. That's the symmetrical triangle I should have drawn.
I just posted this comparison chart of this rally to 2017/2018 and if BTC follows the same movements then the down hill run that I've been calling for will be happening within the next 2-4 weeks.
In the meanwhile, I'll be closing out trades over the next week or so now that BTC has bounced off of the $10,800 trend line support with a stoploss set right under it. That should allow some profits to be taken rather than dumping prematurely.
Here are the key resistances I'm considering for exit while BTC bounces off of the $10,800 support.
From a technical standpoint all of the conditions have been met. This doesn't mean the correction is over but I've gotten all I needed from this chart so updates about BTC will be posted on my recent charts.