3 Crypto Chart Pattern Rules to Build Around | And More in This Weeks Crypto Update.
- Zilliqa is Now Most Overbought in History, What it means?
- You Need to See This Ethereum Crocked Inverted Head & Shoulder Patten
- 3 Crypto Chart Pattern Rules to Build Around
Zilliqa is Now Most Overbought in History, What it means?
Zilliqa (ZIL) is the best crypto with over 131% gains in the last 7 days. ZIL has also printed its biggest one-day rally in history on March 26, following a 99% rally. However, this price development has sent the RSI oscillator to its highest level in history.
Below, we’re going to look at several technical factors to better understand what’s going on behind the curtain.
The current highest in history RSI reading of 89.68 has surpassed the previous all-time high reached in February 2020. While the price reached extreme overbought readings, we can’t solely rely on the RSI as a standalone tool.
In this regard, here are some bullish technical developments worth taking into consideration:
- We broke the downward sloping trendline that connects the all-time high and the subsequent peaks
- We broke above the 200-day simple moving average
- The current bottom came as a result of a bullish divergence signal
- The current rally is potentially unfolding in a five Elliott Wave sequence
200-Day Simple Moving Average
This is the first major breakout of the 200-day SMA since we broke below it in May 2021. While we have two failed attempts to break above the 200-day SMA during 2021, this time around, the breakout is extremely powerful.
Elliott Wave Analysis
Up from the February 24 low wave, I ended at $0.045 high, and the correction in wave II ended at $0.036 low. In the short term, wave III is still in progress and has the potential to peak around the $0.12 resistance zone.
Once we peak in wave III, we can expect a pullback in wave IV, which should give some time to the RSI oscillator to stabilize.
You Need to See This Ethereum Crocked Inverted Head & Shoulder Patten
Ethereum (ETH) made an inverted Head and Shoulder pattern on the daily chart, which was the catalyst for the current rally. However, unlike the traditional inverted H&S pattern, the current version printed on the ETH daily chart is “crocked.”
Inverted Head and Shoulder Pattern
In technical analysis, this “crocked” form is also called the Quasimodo pattern. Unfortunately, it’s a little harder to identify because the head is not the lowest point of the pattern. Nevertheless, it remains a powerful bearish-to-bullish reversal signal.
ETH’s price accelerated to the upside once the price took out the neckline, but the good news is that the inverted head and shoulder target has not been met.
The price target is the pattern’s height, aka the difference between the lowest point of the head and the neckline, which is then projected to the upside from the neckline breakout point. In our case, the measurement price target comes at around the $3,900 level.
200-Day Moving Average
In the short term, ETH’s price is stalling at the critical 200-day simple moving average. Still, the price trading between the 200-SMA and 50-SMA is an early sign of a potential golden cross signal — aka the crossing of the 50-SMA above the 200-SMA, which is a bullish reversal signal.
3 Crypto Chart Pattern Rules to Build Around
Not all chart patterns are created equal. To discern a low-probability chart pattern from a high-probability one, you need to have a foundation to build around.
There are three rules by which we can analyze any price action pattern. If the price action can successfully pass the 3-rule test, we’re potentially dealing with a high-probability setup.
Here are the three rules:
- Candlesticks with big wicks
- Relatively bigger candles compared to the nearby candles
- Market conditions (trend, range, or breakout mode)
An essential feature of the candlesticks is the wicks. The size of the wick is only meaningful in relation to the candle body and the nearby candle wicks.
For example, long candlestick wicks show more than just price rejection. When long wicks are part of a chart pattern, and within the context of a trend, we want to pay attention because it can signal the end of the trend.
We have added some examples of Candlestick wicks to show their importance.
The Gravestone Doji is a bearish reversal pattern represented by one candle. This candle has the low, open and closes around the same price, while the higher features a long upper wick. As it was explained during other Doji patterns, Dojis are indecision patterns. Their shape determines whether they have higher chances to lead to rises or falls in the price. On this occasion, the Doji has a long upper wick, which indicates that the bears are more present in the market and the price is more likely to go down. Therefore, if selected in an automated strategy, this pattern will signal a sell when spotted in the chart.
A Hammer is a bullish reversal pattern formed by one candle. It has a short body at the top and a long lower wick. That is, its opening, closing, and maximum are very close to each other. However, the minimum is relatively far from them. Commonly found during downtrends, its long lower wick suggests that the demand has strongly rejected the price when it tried to continue its way downwards. Then, suggesting that the demand is very present at that price and that it can reverse its trend. Usually, a Hammer precedes an upwards trend reversal or pullback. Therefore, whenever it appears in a chart, it implies that the price is likely to increase and can be interpreted as a buy signal. Also, it can be easily combined with other indicators to reinforce the entry points.
Candlestick Price Range
The candlestick price range is the second criteria by which we want to analyze every chart pattern. A wide range of candlesticks is another sign of confirmation of relatively good price action.
Market context is everything when we analyze chart price action. We want to trade only when the market conditions are favorable to our trade pattern. For example, if the head and shoulder pattern forms within a consolidation, that’s not a reliable trade setup. The head and shoulder pattern is only valid when it forms within an uptrend.
Bottom Line: We want the price action we trade to pass the three-rule test before risking our money. These are only general guidelines, and some discretion is required to master price action trading.
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