Market Overview: Bitcoin Futures
Bitcoin test of head and shoulders bottom breakout point on the weekly chart. The price decreased its value by -11.02% during the week. Last week, instead of activating a bullish setup, the price reversed down and created a second leg sideways to down that happens after a bull breakout of a head and shoulders bottom pattern.
Bitcoin futures
The Weekly chart of Bitcoin futures
Analysis
- This week’s candlestick is a strong bear breakout bar. It is a small second leg sideways to down after a higher high.
- A small second leg sideways to down after a bull breakout is a bull flag pattern.
- Since the bull breakout of the Head and Shoulders Bottom (HSB) during early March, the price is sideways.
- However, there is a gap open between the price and the HSB breakout point.
- Bears are trying to close the gap because that will tell that bulls are not as strong as they could be.
- Moreover, when the price tends to close major gaps, like this one, normally means that the dominating market cycle is a trading range.
- During 80% of the time, the price is contained within trading ranges.
- Since June 2022, we have been saying that the likely market cycle was a trading range instead of a bear trend. This remains true today, the market cycle is more likely a trading range instead of a bull trend.
- When the price starts to keep open gaps, the market cycle might change from trading range to trend.
- Nowadays, the different participant’s perspective might look something like this:
- Bulls:
- They think that the bottom of a bull channel, the 20 Exponential Moving Average (20 EMA) and that the prior breakout point, will act as support.
- Therefore, they want reversal up, a bull breakout of the bull flag, and achieve higher highs.
- To achieve higher highs after a breakout point test, it is always very bullish.
- Bears:
- They expect to close the gap with breakout point.
- Moreover, they want another strong consecutive bear bar because that might mean that the breakout test is failing.
- They want to get to the major lower high, that is also around the apex of a trading range.
- Bulls:
Trading
- Bulls:
- This week’s candlestick is a bad bull signal bar.
- Some bulls might buy with limit orders at the breakout test or at the 20 EMA, with a stop loss at the major higher low and a profit target at the HSB Measured Move (MM). I think the probability of this trade it is not 60%, since the market cycle is a trading range. But since the major higher low is above the low of the HSB, the probability, risk, and reward equation might be attractive enough for some bulls to play the trade.
- However, a reversal up from here, would increase the probability of success significantly.
- Bears:
- This week’s candlestick is a good bear signal bar.
- But the context is bad for the bears, since the price sits above supports.
- Hence, the bears should probably wait until there is at least another consecutive bear bar.
The Daily chart of Bitcoin futures
Analysis
- During the week, the price break down below the Head and Shoulders Top (HST) pattern. It also broke below a triangle pattern.
- The bulls did a bull breakout of the triangle during the prior week.
- However, before there was an activation of the bull signal bar, the price reversed down fiercely and activated the Head and Shoulders Top (HST) bear sell signal, which was selling below the right neckline of the HST.
- Then, the price tested the 20 EMA and then reversed down again. So, the follow through was not strong.
- On Thursday, the price created an ioi pattern, which is a buy and a sell setup. But since Thursday was a good bear bar, bears had a higher probability of success than bulls.
- Friday was a bear bar, but with a prominent tail below. Moreover, the price created a parabolic wedge bottom.
- The market cycle is more likely a trading range than a bull or a bear trend. Strong bars fail to get good follow through, and many bars are dojis or have tails.
- Nowadays, the different participant’s perspective might look something like this:
- Bulls:
- The bulls think that this is a second leg bear trap. The first leg was from the top of the HST pattern.
- They want to get back to the apex of the triangle and avoid an extension of the bear climax.
- Bears:
- They want a breakout below the HST.
- They almost achieved their minimum goal, that was a 1:1 MM from the right shoulder neckline.
- Ultimately, they would like to get all the way down where the last bull breakout begun.
- Bulls:
Trading
- Bulls:
- Some might have bought with a limit order below the low of the HST. But this kind trading is hard, since their stop is far, probably at a 1:1 MM down of the HST, and their target is nearby. They are scalping. They are good at getting out quick if their position is being compromised, or to add to their losing positions if the context still favors them.
- Most traders should wait until there is at least a micro double bottom, or double bottom, and then buy above a good stop order signal bar.
- Bears:
- Some sold below the ioi, but it is not the best context. The bears are going lower, but most of the bars are trading range bars.
- They might wait to sell below lower lows after there is a failed reversal up.
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Thank you Josep, these weekly analysis help me frame my weekly trading strategy. You are also helping me to reinforce what I learned in the course. My only complaint is there’s only one analysis per week . Keep it up, I really appreciate your effort.
Hola Elijah! Thank you very much for your kind comment, I really appreciate it. More important, we are glad that you find it useful for your Price Action journey.
Wishing you a lovely week ahead, Josep.