It has been ten days since bitcoin took a huge tumble down to the 17,600 dollars (16,600 euro) level. From that point, we saw a number of green candles, but soon after, bitcoin encountered resistance. Currently, we are in a sideways trend between this support and resistance.
The sideways trend
If we take a look at the 4-hour chart (see image below), we can see that the green box is functioning as an excellent support so far. This green box lies between the 19,000 level (18,000 euros) and the 20,000 level (18,900 euros) because that is where we formed a top in 2017. In 2017, these levels were a resistance, and as you may know, it is often the case that a resistance turns into a support once it moves above this level. So it is in this situation as well.
In addition, bitcoin is experiencing strong resistance in the red box. Since the major downtrend, bitcoin saw momentum towards this resistance box but failed to break through these levels. However, we returned to support, after which we again saw green candles towards the resistance box, but again without much success.
Yesterday the bitcoin price did close a green candle above the resistance, but unfortunately, the following 4-hour candle was red, undoing this move. And now we are actually hanging between the green and red box.
Back to support?
It is likely that bitcoin will now first test support again before we make another attempt to break the resistance in the red box. I will back up that thought with two reasons.
First, it is very common in the market that you go back to the base when a resistance is not broken. From there, a small upward movement can start again with the aim of breaking through the resistance. This is only possible if there are indeed enough buyers in the market willing to buy at the support level. So it is common in a market, after the failure of a resistance level, to test the support again. If support remains strong, then you can start looking again at a possible attempt to move towards the resistance and break through the level.
Head and shoulders pattern
There is also a second reason to believe that we will now move to the green box first, and that is because we see a head and shoulders pattern in the 4-hour chart. This pattern consists of three rises which we call a left shoulder, a head, and a right shoulder.
This pattern also includes a price target. How low this is, depends on the height of the head measured from the neckline. This height is placed below the neckline and in this way, the target of this formation can be found. The target, in this case, is the green box.
At this moment, we are already halfway to the destination of the head and shoulders pattern. So it is very well possible that we will reach the target within a few hours or a few days. In addition, we should certainly look for invalidation of this pattern. That is the case when a 4-hour candle closes above the neckline. If that happens, the scenario becomes invalid.
