After rallying more than 50% since early November, bitcoin (BTC), the leading cryptocurrency by market value, appears to be setting a pattern. If completed, this could bring prices back to around $70,000.
BTC price action since late November has evolved into what technical analysts call a “head and shoulders” (H&S) pattern, which heralds a bullish to bearish trend change. The first failed attempt to scale the $100,000 mark in November marked the first shoulder.
This was followed by the head, which marked a rapid decline to $92,000 from the all-time high of over $108,000 in the second half of December. Meanwhile, the 5% drop to almost $97,000 hints at the formation of a right shoulder.
If the sell-off persists and prices fall below the neckline (the horizontal trend line connecting the troughs of the two shoulders), the bearish head and shoulders reversal pattern would be confirmed. At the time of writing, the so-called neckline support was seen around $91,500.
A break below this level could pave the way for a drop to around $75,000, and this figure is determined using the measured move method. The method measures the vertical distance from the highest point of the head to the neckline and then subtracts the same from the neckline price to arrive at a possible downside target.
In technical analysis, traders examine charts for price patterns to predict future price movements. However, caution should be taken when trading patterns like these which can fail, trapping traders on the wrong side of the market.
