The Bitcoin price often creates repetitive patterns that can be identified to predict future price movements. One such pattern is created by a long bearish upper wick and a moving average (MA) rejection.
The Bitcoin price has been known to be very volatile. Therefore, when trading, it is important to use several methods to reduce your risk — such as using stop losses, low leverage if you are margin trading, and proper trade sizing.
However, especially in the case of stop losses, significant fluctuations in the form of wicks can often trigger them. In this case, the price moves very quickly in one or the other direction before swiftly reversing. This effectively stops out traders from their current position.
However, wicks create several important patterns, which when used along with indicators can help in predicting future prices.
Cryptocurrency analyst and trader @cryptopeppa suggested that a pattern of upward wicks an a rejection once they reached the 100-hour exponential MA suggests that the Bitcoin price will decrease.
— CryptoDogAsianFriend (@CryptoPeppa) November 21, 2019
Let’s see if we can find more of these patterns and if they can be successfully used to predict the Bitcoin price.
Bitcoin’s Wick Movements
In the pattern, the Bitcoin price first initiates a downward move. After some consolidation, it begins an upward move — which is ultimately unsuccessful and leads to the creation of a long upper wick. The wick stops once it reaches the 200-hour moving average (MA) and an important Fib level. In the case below, it was the 0.5 Fib level.
Additionally, after the wick, the Bitcoin price made two more attempts at breaking out above the MA. However, both were unsuccessful. It is imperative that the price reaches a close above the MA for the reversal to be initiated.
Another similar pattern transpired on November 17. After a decrease, the Bitcoin price made an attempt to retrace upwards. The first attempt ended once the price reached the 100-hour MA and the 0.618 Fib level, similar to the previous move.
However, the Bitcoin price made another attempt, which retraced fully to the pre-breakdown prices. However, the movement also ended with the creation of a long upper wick.
Another full retracement occurred in September.
This time, after a decrease, the Bitcoin price made a double top at the 0.618 level. This was below the 100-hour MA.
Afterward, it made an attempt at moving above the MA, which ended in a similar wick. This decrease was more easily identified since it was combined with a bearish divergence in the RSI.
To conclude, wick rejections at a significant MA do not necessarily mean that the Bitcoin price will dump. Previous market structure plays a big role in determining if they will.
A rapid price decrease followed by an attempt at a reversal, in which a wick is created a significant Fib level and MA, very often leads to a dump. The potential for further decreases is strengthened by the presence of a bearish divergence in the RSI.
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 courtesy of Twitter, TradingView.
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