This classic trading pattern signaled that Bitcoin price had hit a top

Traders tend to focus too much on timing the right entry to a trade, but very few focus on developing a strategy for exiting positions. If one sells too early, sizable gains are left on the table and if the position is held for too long, the markets quickly snatch back the profits. Therefore, it is necessary to identify and close a trade as soon as the trend starts to reverse.One classical setup that is considered reliable in spotting a trend reversal is the head-and-shoulders (H&S) pattern. On the longer timeframes, the H&S pattern does not form often, but when it does, traders should take note and act accordingly.Let’s look at a few ways to identify the H&S pattern and when to act on it.Head-and-shoulders basicsThe H&S pattern forms after a bull phase and indicates that a reversal may be around the corner. As the name indicates, the formation consists of a head, a left shoulder, a right shoulder, and a distinct neckline. When the pattern completes, the trend usually reverses direction.Head-and-shoulders top pattern. Source: TradingViewThe above image shows the structure of an H&S pattern. Before the formation of the setup, the asset is in an uptrend. At the peak where the left shoulder forms, traders book profits and this results in a decline. This forms the first trough but it is not yet a strong enough signal to provoke a trend change. Lower levels again attract buying because the trend is still bullish and buyers manage to push the price above the left shoulder, but they are not able to sustain the uptrend. Profit-booking by the bulls and shorting by counter-trend traders pull the price down, which finds support near the previous trough. Joining these two troughs forms the neckline of the setup.As the price rebounds off the neckline, the bulls make one more attempt to resume the uptrend but as the price reaches the height close to the left shoulder, profit-booking sets in and the rally fizzles out. This lower peak forms the right shoulder and is usually in line with the left shoulder. The up-move reverses and the selling picks up momentum. Finally, the bears succeed in pulling the price below the neckline. This completes the bearish pattern and the trend reverses from bullish to bearish.Spotting trend reversals with the H&S patternBTC/USDT daily chart. Source: TradingViewBitcoin (BTC) started a strong up-move after breaking out at $20,000 in December 2020. The BTC/USDT pair hit a local peak at $61,844 on March 13 and the price corrected, forming a trough on March 25. This local peak was the left shoulder.The bulls considered the dip as a buying opportunity because the trend was still up. Aggressive buying then pushed the price above $61,844 and the pair hit a new all-time high at $64,854 on April 14. This level attracted selling, which pulled the price down to form the second trough on April 25. The middle peak, higher than the other peaks, formed the head.Another attempt by the bulls to resume the uptrend failed on May 10. This formed the right shoulder and the ensuing correction broke below the neckline of the pattern. The breakdown and close below the neckline on May 15 completed this bearish setup.Sometimes, after the breakdown, the price retests the breakdown level from the neckline but when the momentum is strong the retest may not happen, an example which is shown in the chart above.BTC/USDT daily chart. Source: TradingViewTo calculate the pattern target of this setup, determine the distance from the neckline to the top of the head. In this case, the value is $15,150. This distance is then subtracted from the breakdown point on the neckline to arrive at the minimum target objective. In the above example, the breakdown happened close to $48,000. This projected a pattern target at $32,850. This figure should be used as a guide because sometimes the decline exceeds the target, and in other scenarios the down move ends without reaching the target objective.Head-and-shoulders sometimes fail Sometimes traders jump the gun and take counter-trend positions before the price breaks below the neckline of the developing H&S formation. Other times, the break below the neckline does not see follow-up selling and the price climbs back above the neckline. These instances may lead to failed setup, trapping the aggressive bears who are forced to cover their positions and this results in a short squeeze.ADA/USDT daily chart. Source: TradingViewCardano (ADA) started an uptrend from the $0.10 level on Nov. 20, 2020. The uptrend hit resistance in the $0.35 to $0.40 zone in January and a H&S pattern started developing. The price dipped to the neckline on Jan. 27, but the bears could not sink and close the ADA/USDT pair below the support.When the price rebounded off the neckline on Jan. 28, it was a signal that the sentiment remained bullish. There was a minor hiccup on Jan. 30 and 31 when bears attempted to stall the up-move near the right shoulder but sustained buying from the bulls pushed the price above the head on Feb. 1. This break above the head of the pattern invalidated the setup. ADA/USDT daily chart. Source: TradingViewWhen a bearish setup fails, it catches several aggressive sellers on the wrong foot. This results in a short squeeze and propels the price higher. The same thing happened in the above example and the pair soared in February.Key takeawaysThe H&S pattern is considered a reliable reversal pattern but there are some important points to bear in mind.A downward sloping or flat neckline is considered to be a more reliable pattern compared to an upsloping neckline. Traders should wait for the price to break down and close below the neckline before initiating trades. Pre-empting the setup could result in losses because a failed bearish pattern could result in a strong rally.The pattern targets should only be used as a guide because sometimes the price may overshoot and continue the down move and at other times it may reverse direction before reaching the target objective.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Bitcoin price hints at 'megaphone' bottom pattern, and a breakout toward $40K

Bitcoin’s (BTC) latest rebound from below $30,000 has increased its prospects of extending its retracement move higher, at least according to one classic technical pattern.Dubbed as Broadening Formation, the megaphone-shaped pattern appears when the price moves inside two diverging trendlines. Investopedia states that a broadening formation represents disagreement over the next potential bias among investors. As a result, the price forms higher interim peaks and lower interim lows.Bitcoin appears to be trading inside a similar structure, as shown in the chart below. Nonetheless, the cryptocurrency lacks volatility, one of the key features of the broadening formation pattern.Stabilized Bollinger bands reflect limited price volatility in the Bitcoin market. Source: TradingView.comShould the pattern play out, the Bitcoin price will undergo a bullish breakout above the structure’s upper trendline. In doing so, it would expect to rise by as much as the maximum height between the broadening formation’s upper and lower trendline. The upside setup appears because traders interpret broadening formation as a trend reversal pattern.ive been here before, and if your new to the megaphone bottom pattern then here you go ;-)…and yes our #tbts #scriptA scooped up this price here$btc $btcusd #bitcoin #crypto #cryptocurrency #xbt #xbtusd #btcusdt #btcusdc https://t.co/b9D6MzoKlE pic.twitter.com/nufz9dYDMf— TBTS – The Best Trading Scripts (@CrytOcaine) June 21, 2021But until then, the pattern offers swing trading opportunities to daytraders, i.e., a bounce from the lower trendline tends to present Long opportunities toward the upper trendline, and a pullback from the upper trendline could have traders open short positions toward the lower one. Again, the Bitcoin price volatility is lower enough to invalidate such intra-range setups.Falling channelThe most interim resistance level is near the dashed trendline in the Bitcoin chart below.Bitcoin falling channel setup limits bullish broadening formation’s upside outlook. Source: TradingView.comA close above the dashed trendline expects to have Bitcoin test $35,00 as its next resistance target. On an extended move higher, the potential to hit $40,000 is higher based on the cryptocurrency’s recent price patterns.Conversely, a pullback from the dashed trendline tends to validate a Falling Channel pattern. On the other hand, Bitcoin could retrace its steps lower towards the so-called Broadening Wedge’s support trendline (next downside target near $28,500).Bitcoin price fundamentalsThe conflicting Bitcoin setups emerge as bulls continue to defend $30,000 as support while bears enjoy control over the $34,000-$35,000 area. Unfortunately, that has landed BTC price inside a constrained trading range, giving no interim clues about where it wants to head next.Fundamentals have played a key role in trapping Bitcoin prices. To the upside, inflationary pressures from the traditional finance sector have provided tailwinds to Bitcoin’s safe-haven narrative. Meanwhile, the downside is an increasingly global regulatory discontent toward the cryptocurrency sector.Related: SEC Chairman says cryptocurrency falls under security-based swaps rulesIn the last two months, the market has witnessed China banning cryptocurrency trading, India raiding regional crypto exchange WazirX, and the U.K. banning Binance’s subsidiary from operating regulated businesses. In addition, Japan and Hong Kong also issued warnings and restrictions against Binance.[embedded content]Earlier this week, the U.S. state authorities closed crypto company BlockFi’s accounts, alleging that the startup sold unregistered securities. The sector also received criticism for increasing carbon footprints via mining, which requires heavy computational power to run blockchains.”As long as global regulation of cryptocurrencies is not eased, or a resolution is met, I believe it is difficult to gain public trust, and for Bitcoin to scale the heights it reached in early 2021,” Adam Todd, Founder, and CEO of Digitex, told Cointelegraph.JG Collins, head of the Stuyvesant Square Consultancy, also wrote in his Seeking Alpha op-ed that “national economics regulators, state environmental regulators, and municipalities troubled by “mining” raising local electrical rates will sweep cryptos away like a tsunami.”The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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$60K is now more likely for Bitcoin than $20K, Bloomberg's senior strategist asserts

Bitcoin (BTC) has better probability of recovering back to $60,000 than to break below its current support level of $30,000 and target $20,000, believes Mike McGlone, senior commodity strategist at Bloomberg Intelligence.A screenshot from McGlone’s latest analysis on the flagship cryptocurrency, first shared by Bloomberg’s senior ETF analyst, Eric Balchunas, shows him comparing Bitcoin’s ongoing price action with the “too-cold” period of the 2018-19 trading session. In detail, the BTC/USD exchange rate entered a prolonged consolidation period near $4,000 following an 80%-plus crash in 2018, but a sudden run-up in 2019 sent its prices to as high as $14,000 on some exchanges. McGlone, who’s known for his previous bullish calls on Bitcoin, noted that BTC, which has been consolidating near $30,000 since May 2021, could post a similarly surprising rally while aiming to hit a refreshed resistance target near $60,000.”The more tactical-trading-oriented bears seem to proliferate when Bitcoin sustains at about 30% threshold below its 20-week moving average, allowing the buy-and-hold types time to accumulate,” the strategist wrote.The moving average trioBitcoin’s bearish and bullish cycles appear to wobble around three key moving average indicators. They are the 20-week exponential moving average (20-week EMA; the green wave), which serves as interim support/resistance, the 50-week simple moving average (50-week SMA; the blue wave), and the 200-week simple moving average (20-week SMA; the orange wave).Bitcoin bear trends tend to exhaust after its price tests the 200-day simple moving average as resistance. Source: TradingView.comDuring bull trends, Bitcoin prices typically stay above the three moving averages. Meanwhile, bear trends see the cryptocurrency prices closing below the 20-week EMA and the 50-week SMA, as shown in the chart above.The 200-week SMA typically serves as the last line of defense in a bear market. So far, Bitcoin has bottomed out twice near the orange wave, each time sending the prices explosively higher. For instance, a take-off from the 200-week SMA in 2018 drove the Bitcoin prices to almost $14,000. Similarly, the wave support capped the cryptocurrency’s downside attempts during the Covid-19-led crash in March 2020. Later, the price bounced from as low as $3,858 to over $65,000.Bitcoin is now in its third drop below this trendline since 2018. The cryptocurrency has broken below the 20-week SMA (near $39,000) and is now targeting 50-week SMA (circa $32,200) as support. If the old fractal is repeated, it should continue falling towards the 200-week SMA (around $14,000).Except McGlone believes there could be an early rebound. As a bullish fundamental, the strategist pointed towards the recent China crypto ban.Tether takes the cakeBeijing announced a complete ban on cryptocurrency operations in May 2021. The decision stonewalled the mining operations in the country, which were forced to either cease or move their base outside. Bitcoin prices fell sharply in response.Nevertheless, McGlone highlighted China’s rejection of open-source software crypto-assets as a plateau in their economic ascent. In his tweet published Friday, the analyst attached an index showcasing booming volumes and capitalization of the U.S. dollar-backed digital assets, including Tether. He then pitted the rising demand for digitized dollars against the Chinese yuan-to-dollar exchange rates, noting that the logarithmic scale of market cap fluctuations between the two fiats was below the baseline zero between 2018 and 2020. That means the yuan was depreciating against the dollar.Tether’s appreciation against the US dollar index and Chinese yuan. Source: Bloomberg IntelligenceThe scale just went back above zero, signaling an interim growth for yuan against the dollar. But its uptrend still appeared dwarfed before Tether whose market cap rose by more than 40% above baseline. McGlone noted:China’s rejection of open-source software crypto-assets may mark a plateau in the country’s economic ascent, we believe while extolling the value of the U.S. dollar and Bitcoin.Additionally, Petr Kozyakov, co-founder and CEO at the global payment network Mercuryo, noted that while the U.S. government has not launched a central bank-backed digital dollar officially like China, the availability of many other alternatives, including USDT, USDC, and BUSD, could pose challenge to CCP-controlled digital yuan.”These cryptocurrencies are pegged 1:1 against the U.S. dollar and as shown in the chart McGlone shared, the dollar is leading the digital rise over the Chinese Yuan,” Kozyakov said.”While China’s crackdown has had an impact on Bitcoin’s price as it hovers above $30K on 23rd June, fundamentals have improved vastly since 2018 due to institutional FOMO […] Bitcoin should recover to $50K by the turn of the year.”The Chinese economy will keep growingHowever, rejecting McGlone’s take, Yuriy Mazur of CEX.IO Broker noted that the Chinese economy should continue flourishing with or without cryptocurrencies, noting that it has nothing to do with the demand for digital assets.Related: US-China trade war and its effect on cryptocurrencies”The Chinese government is too smart to miss out on something the world deems valuable,” Mazur told Cointelegraph. “So, expect them to take considerable measures to roll out a Yuan-backed cryptocurrency (in the future) that they have complete control over.”The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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