Chart patterns are used in technical analysis to limit the scope of possible price movement. Additionally, the type of pattern created often indicates the direction of the decisive move that breaks the pattern. When used in combination with technical indicators, accurate predictions can be made.
Professional trader and financial consultant @captainscio recently pointed out a descending triangle forming on the daily chart for Bitcoin.
Bearish on the daily. Should break any time now. pic.twitter.com/EQbbXZ3KcO
— CaptainScio: FA and TA For BTC And Indices (@CaptainScio) October 4, 2019
The descending triangle is considered a bearish pattern, making a price breakdown more likely.
Let’s take a closer look at this pattern and try and predict how it will play out.
Difference in Time-Frames
The descending triangle outlined has transpired over a period of nine days.
In such cases, using the daily time-frame might not give the most accurate trend-line.
The reason for this is the presence of wicks — in this case low-side wicks, which makes it hard to determine the exact support line.
In the image below, the triangle is drawn on a six-hour time-frame (left) and daily (right).
The resistance line is almost identical.
However, the support line differs since it is drawn near the closing prices of the respective time-frames.
While on the six-hour time-frame support seems to be at $7,800, while it is drawn at $8,080 on the daily.
Looking at the hourly time-frame makes us believe that the $7,800 support line is the more precise level.
There are two reasons for this;
- Firstly, the price began two rapid upward moves in both instances of meeting this support on Sept 26 and Sept 30.
- Secondly, the price has traded below the $8080 level for a total of 30 hours without initiating rapid decreases.
When a support line is broken, rapid downward moves usually follow. Since this was not the case for Bitcoin, we have further reason to believe that the correct support line is drawn at $7,800.
As @Captainscio correctly pointed out, the price has been trading inside a descending triangle for a period of nearly nine days.
Additionally, a breakdown is likely to soon follow.
However, we believe the correct support line should be drawn near $7,800 instead of $8,080.
Where do you think the support line should be drawn? Do you think the Bitcoin price will break down? Let us know in the comments below.
Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile.
Images are courtesy of Twitter, TradingView