Bitcoin throwback could trigger technical bottom formation.
The price of Bitcoin is facing difficulties after failing to break through resistance last month. Coupled with the recent pressure from the US SEC on the crypto market, things are not looking good for the bulls.
However, the correction has stopped at a key level, indicating that a “throwback” is in progress. If confirmed, BTCUSD could trade above $40,000 per coin in the near future.
A Closer Look At The Technical Bottom Formation In Crypto
Technical analysis studies past price history to predict future market movements. Certain patterns have been discovered that produce reasonably replicable results. From the size or shape of the pattern, analysts can roughly determine how far the associated breakout should travel.
Over the past year, the price action of Bitcoin has formed an inverse head and shoulders pattern that appears to be technically flawless. The inverse head and shoulders is a bullish reversal pattern that appears at the bottom of a trend as it changes direction. It consists of a left shoulder, head, a right shoulder, and a neckline. The head must be lower than each shoulder, and the neckline is of extra importance because that’s where the abundance of orders are associated.
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Is this a throwback to the neckline? | BTCUSD on TradingView.com
What Exactly Is A Bitcoin Throwback, And Why Does It Matter?
A throwback occurs after a breakout of the neckline when the market isn’t convinced of the bullish move. The neckline holding is a sign to others that the pattern could confirm, and more traders pile in, creating a breakout and a strong move higher. Using the example as a comparison, the resulting breakout could reach as much as over $40,000 per BTC.
When bullish patterns fail, the result is called a “busted” pattern and can cause a further crash as long traders are stopped out below the neckline. Stop-loss levels are placed below the neckline because a confirmed pattern will not breach below this point. Therefore, for the pattern to confirm, holding the neckline is especially critical. Will we see this bullish chart pattern ultimately confirm or fail?
This chart appeared in issue #7 of CoinChartist VIP alongside a dozen other exclusive crypto charts.