Bitcoin this morning touched $50,000 – an achievement that may have made a bear market seem less likely. But the bulls could be celebrating too soon, and the extreme pain scenario of a symmetrical triangle that few bulls see in the coming days could end up.
Here’s a closer look at the symmetrical triangle, what the corrective pattern suggests, and why the bulls haven’t come out of the danger zone yet.
Downtrend is still unbroken, symmetrical triangle is possible
Downtrends can be tricky. It does not always mean a bear market, and even if the downtrend line is broken, another line can form higher and prevent the reaction that the bulls expect.
Related reading | Can Bitcoin Bull Science Leave Bears Awkward?
For example, when Bitcoin broke out of the downtrend resistance of a bear market, the result was an early 2019 rally to $13,000. However, due to a new downtrend line being created at this high, Bitcoin has spent another full year and then some below the new downtrend resistance.
There is still one more downtrend resistance to go before bulls are out of the woods | Source: BTCUSD on TradingView.com
Assets often have to clear three opposing trendlines to resume the primary trend. This situation is happening now, but on much smaller time scales. Bitcoin price reached two downtrend lines, but one remains.
Drawing a symmetrical support line offers the possibility of creating the triangle that few technical analysts are currently talking about. Valid trendlines tend to have at least three touches, but the third touch can provide the final E wave of a corrective triangle pattern during a bull market.
The wave 4 correction could be an Elliott Wave triangle pattern | Source: BTCUSD on TradingView.com
Bitcoin corrective wave may be about to end
An electronic wave could remove any positions built at support around $40,000, crushing bulls who all got in on what they thought was a bull flag breakout. This move will also bring back the bearish glut, and push the bitcoin price back into the $30,000 range to absorb more short positions.
Only then the bitcoin price may reach through the upper downtrend line to continue rising. But it all depends on where the electronic wave “ends”. It is worth noting that such a triangle during a bull market often leads to new highs.
Related reading | Bulls regain control of Bitcoin trend strength: What to expect
An Elliott wave corrective triangle will appear during wave 2 or 4 of an impulse wave, which represents the primary trend. The Elliott wave corrective triangle and its higher lows will keep the bullish movement structure in tact, and fit with the Elliott wave rule of wave rotation.
If Bitcoin is in a motive wave, wave 5 should begin soon | Source: BTCUSD on TradingView.com
This rule suggests that only one of the two corrective waves – wave 2 or wave 4 – will lead to a sharp correction. The other is a sideways correction that lacks a lower low. Not only do corrective waves tend to alternate in their overall intensity, but patterns tend to shift. This means that if wave 2 is a zigzag Elliott wave, then wave 4 will be a flat, triangle, or other pattern.
Elliott Wave Theory provides a roadmap for a trend. The roadmap goes on to say until the opposite is proven, that once wave 4 ends, wave 5 begins. But for now, the bulls are not out of the woods yet, and a sweep in the lower levels is still possible.
Continued TonySpilotroBTC on Twitter or through TonyTradesBTC Telegram. The content is educational and should not be considered investment advice.
Featured image from iStockPhoto, Charts from TradingView.com
