Market Overview: Bitcoin
This week, Bitcoin formed an inside bar on the weekly chart. It is not a good follow-through bar for the previous bear bar. Still, this marks the third bar without trading above the previous week’s high.
Bitcoin
The Weekly chart of Bitcoin
Recently, the price executed a bull breakout of a Cup and Handle pattern. The Cup and Handle is a reliable pattern to trade, particularly when it follows a strong bull trend, as was the case here.
The bull breakout bar from the handle was strong, indicating solid buying pressure at the time. However, the follow-through bar was a bear bar, which is not what bulls want after a bull breakout. Bulls desire a good buy signal to be bought, with consecutive bull bars confirming momentum. This bear bar served as a warning for the bulls, they may need to be cautious at minimum.
Now, the price tested the breakout point last week, which is the high of the handle. The price reacted there, and this week it reversed up. What bulls ultimately want is to make new highs and maintain the trend. Sustaining above key levels like breakout points is crucial for trend continuation.
For the bulls, it is vital to keep the Body Gap open. A body gap between the previous higher high and the most recent higher low is a feature of a “small pullback bull trend.” If this is indeed a small pullback bull trend, we are witnessing the second reversal attempt. Normally, strong trends resist at least four reversal attempts before failing.
There is always doubt about whether a small pullback bull trend is in play. As long as it is not proven wrong, it is prudent to bet in favor of the trend, at least for a small profit.
On the chart, the price structure fits within an accurate bull channel. This bull channel is broad. In a broad bull channel, both buyers and sellers can make money. Bears can scalp around new highs, while bulls can swing by buying the dip.
However, this kind of structure is not easy to trade, as broad bull channels imply trading range behavior in price action. Hence, any open position is hard to hold, with reversals constantly going against your position. This means it is a better environment for quick profits rather than extended swing trades.
It is true that a breakout from a Cup and Handle is typically a swing trade opportunity. I would swing trade this, staying faithful to the initial signal. Buying the bull signal of the handle was a legitimate entry, and entering with a market order as soon as the price exceeded the handle’s high was valid.
For those who entered there, they are relying on their stop, now placed at the handle low. They will exit if there is a close of the body gap. What they want to see is a sequence of highs and lows with body gaps remaining open, supporting trend strength.
Their original target was, at minimum, a 2:1 profit, aiming to reach $140,000. The probability at entry was 40% in their favor. Their trade still holds. Since the price did not go their way immediately, they might take partial profits on half the position at 1:1, running a free trade and relying on the stop until price action dictates closure.
For the bears, they need to close the body gap first, then they have room toward the trend line low. Since the bear scenario requires more milestones to be worthwhile, I am avoiding it for now.
In conclusion, for the weekly chart, bulls have an opportunity to create a small pullback bull trend by holding above the previous breakout point and achieving higher closes. If the body gap closes, chances of testing the Major Higher Low and the lower bull channel trend line will increase quickly.
The Daily chart of Bitcoin
The daily chart shows a trading range. Bears broke below a “tight trading range” last week, but this week the price is revisiting the apex, resulting in a reversal up. This indicates we are in a broader trading range rather than just the tight one.
Bulls want trend resumption, but no one will buy this week’s price action outright. In fact, traders are more likely looking to sell, as the price is around where the previous bear breakout began. That bear breakout created micro gaps, which were strong at the start of the move, signaling bearish intent.
The reversal up is weak, with a couple of legs up, but bull bars lack great follow-through, and there are interspersed bear bars. I would not be surprised if another leg down starts from here.
Imagine you are a bull: you buy the last bull breakout bar because previous bull bars had poor context for buying. So, you enter, but the follow-through is a bear bar. What do you do? Probably get out and wait to buy lower. You cannot structure a swing trade from this buy signal reliably.
So, most likely, we should expect gaps to be closed. We expect the current bull leg low to be tested, the major lower high above to be tested as well. We expect reversals, as trading ranges are characterized by two-sided action.
The price action often proves the analyst wrong, and we are not afraid of that. For now, I see a trading range. If I want to buy, it will be around the current low, which has confluence with the breakout point support level..
I do not think the current bull leg will initiate a bull trend, so I will either fade a second or third leg up or join the bears for a test to the previous bull breakout low, or even lower.
Overall, bears want a lower high major trend reversal, while bulls want bull trend resumption. I find it easier to expect another bear leg starting around here, but I also see equal chances for bulls to create a second leg up to test the all-time highs.
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