What to know:
- BTC’s latest drop may be setting the stage for a head-and-shoulders bearish reversal pattern.
- The completion of a pattern would signal an extended downside toward $75,000.
- However, technical analysis of charts doesn’t always tell the full story, so caution is warranted.
Following a surge of more than 50% since early November, it appears that bitcoin (BTC), the foremost cryptocurrency by market capitalization, might be shaping a particular design. If this pattern is indeed completed, we could witness prices returning to the range around $70,000 in the middle.
The behavior of Bitcoin’s price starting from late November has shifted into what experts refer to as a “head and shoulders” pattern, which signals an upcoming shift from bullish to bearish trends. The initial unsuccessful attempt to surpass $100,000 in November is considered the first shoulder in this pattern.
After reaching a peak above $108,000 in mid-December’s second half, there was a quick descent back to roughly $92,000, suggesting a retreat. Simultaneously, a 5% drop near $97,000 implies the potential shaping of a right shoulder in the chart pattern.
If the downward trend continues and the price drops below a horizontal line that connects the lowest points of the two ‘shoulders’ in this chart pattern (known as the neckline), it will signal the confirmation of the bearish head-and-shoulders reversal. At present, the neckline support is approximately at $91,500.
If the price falls below the current level, it might lead us to a possible drop towards around $75,000. This estimated value is calculated using the ‘Measured Move Method’. This technique involves determining the vertical distance from the highest peak (the head) to the connecting line (neckline), and then subtracting that same distance from the neckline price point to predict a potential downward target.
When it comes to technical analysis, traders scrutinize price charts searching for recurring patterns that may indicate future price shifts. Yet, it’s essential to exercise caution when dealing with these patterns since they might not always hold true, potentially leaving traders in an unfavorable market position.
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2025-01-07 21:20