Bullish Consolidation 1-2-3-Breakout Pattern

This is a great example of the 1-2-3-Breakout pattern on Bitcoin using the Daily chart .

This pattern can be applied to any equity. Chart patterns represent human behavior and that is a constant among all asset classes.

Point 1 - The First Test - The New High
Price reaches a new high and pulls back when investors take profits.
Price falls.

Point 2 - Second Test
New buyers come in and price tries to attack the highs for a second time. Often this attack fails, because there just aren't as many buyers as before, and people who didn't get a chance to sell at (1) now have a chance, so they sell and run to the bank.
Price falls.

A trend line has now formed between point 1 and 2. This downward trend line basically shows us that price is making lower highs. What we want is to see a higher high, which is an uptrend. Pretty easy right?

Well we can't see a higher high until we break out of the downtrend, meaning, we have to break out of this trend line .

Point 3 - Third Test
People start to watch the trend line as well, so it becomes a self-fulfilling prophecy and the price starts to get stuck under the trend line .
In general, we know that we have less buyers here than before. So here we ask the question, will we ever breakout of this downtrend? Or will we crash down because the buyers are disappearing

Point 4 - The breakout
Now we have the answer. This is VERY OFTEN the fail or succeed point of a pattern like this. After 1,2 and 3 tests of the downtrend, either buyers will give up and go home, meaning sellers take over and price breaksdown OR new buyers come in from somewhere, or maybe they were just waiting for lower prices to buy. Whatever the reason, they step in and start buying. We breakout of the downtrend line, and that inspires more buyers to come in because they were the ones waiting for the trend line break . And then price starts moving fast because everyone wants to buy. THen the media says "this is a great buy" and boom more people come in.

Until finally....we reach a new high price (1) once again. Investors take profits and the whole cycle repeats itself.

If we IDENTIFY the patterns, and RECOGNIZE the breakout points, then we can be prepared to jump in at a favorable point.
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you mean, two dead cat bounces and we are done :) ?
+1 Reply
@Sophia33, What dead cat bounce do you mean? I don't see a dead cat bounce. That usually comes after a sharp drop and then we see a strong bounce which is rejected at some sort of resistance e.g. a gap.
Sophia33 BerlinTrader591
@BerlinTrader591, I meant, 2 and 3 are the bounces.
@Sophia33, Often when a level is tested 2 or 3 times it breaks out.
Great analysis, very easy to understand, thanks!
We have a break out now, question is how likely is it to have a new all time high before a pull back?
@jppol, I personally would like to see an attack, a small pullback, and then a thrust through resistance to new highs. IF the rally is too extended when it reaches resistance, then it doesn't have the power to break through.
4th break analysis,, great one
@AzrulAzir, It's great to hear from you Dian! I love your work!
big question - where is the big OOMPH coming from? Another observation last time it reached lower low before finally broke the pattern, is what i'm waiting for...
@dervious, exactly. that's a great catalyst or OOMPH. When the price drops down below the pattern, and everyone sells and all the weak buyers are shaken out while at the same time, we use up all the sellers. So only strong buyers or buyers waiting like you remain and the price finds a bottom only to shoot back up! It's a failed of the strongest price action signals there is!!