Bitcoin (BTC/USD) price has been taking a relative breather from bullish action during the last several days, a week of indecision would be the most accurate description. As we’re entering the weekend BTC has once again sent a brazen reminder that the volatility is here to stay, at least for now.
With a daily price increase of +10.9% as well as a classic high-probability technical pattern setting up in the background. Could we be actually looking at $5000 bitcoin price before the year-end?
Oldie but goodie – Inverse Head and Shoulders (BTC)
For the keen-eyed technical analyst, there are not a lot of trading patterns more favored than the classic “Head and Shoulders” pattern setup (or in this case the “Inverse Head and Shoulders“). It is a reversal pattern that is created by a swing low, followed by a rally, a lower swing low, a rally, and then a higher low. It can be an incredibly profitable pattern if traded correctly.
Here are a few ways to trade it effectively.
1.) Potential BTCUSD Buy Above Neckline Breakout
A buy above the neckline is the more traditional yet riskier trade setup. The target price would need to reach ~$5500, a +37% increase from the neckline, while the stop loss would stay fixed at below $3200 (Bitfinex).
While you’re only looking at around a 1-to-1 risk reward ratio you have to keep in mind that the inverse head and shoulders pattern is considered to be a high probability pattern with a percentage meeting price target sitting at ~71%, break even failure rate ~10%, an average rise of ~45% and throwback rate of ~64%. The above numbers are based on 3,115 generated trades.
2.) Waiting for the Close (Bitcoin)
A more conservative approach would be to wait for BTC/USD price to close above the neckline on the daily chart (1D) before buying. The target and stop loss would remain the same, though it would place the buyer in a worse risk-reward scenario target/stop-loss wise.
While the current bitcoin chart setup has definite potential for further bullish upside, we still need further price confirmation (a break above the neckline). Not all head and shoulder patterns are suitable for trading, as every trade carries its own risk and reward. That being said, with just a few days left before the end of 2018, a 36% price increase would not be too shocking for the notoriously volatile cryptocurrency.