After days of sudden, strong selling, bitcoin has managed to find a local bottom in the low $7000s where it has been drifting around aimlessly. As many traders on Twitter have noted, we have formed a large consolidation pattern called a symmetrical triangle (outlined in red):
Figure 1: BTC USD, 1-Day Candles, Macro Symmetrical Triangle
Symmetrical triangles are consolidation patterns that are typically agnostic regarding their breakout direction. However, one important thing to note about this consolidation pattern is it embodies some of the hallmarks of a reaccumulation trading range (TR) — most notable is the volume profile:
Figure 2: BTC-USD, 12-Hour Candles, Volume Trend
Overall, the entire volume profile of the symmetrical triangle is sloping downward — this is indicating consolidation in the market. If we look closer at the consolidating volume trend, we can see a few details that are worth noting:
- The red arrows are pointing out the decrease in volume off the peaks of the rallies. Typically decreasing volume off rally reactions indicates a diminishing pool of supply.
- Vice versa, the green arrows are pointing out the increasing volume on the rallies. Increasing volume on rallies shows us there is still a steady amount of demand in the market.
- Points 1 and 2 together also reveal something about the lows made at the lower boundary of the symmetrical triangle: as the market pushes and establishes its lows, we see climactic volume. Climactic volume leading into support is a great sign of supply absorption and hints toward further demand in the market.
There is a really strong case for the current symmetrical triangle being a reaccumulation TR that, in the grand scheme of things, is nothing more than a pitstop in an otherwise upward-trending market. A breakout to the top of the symmetrical triangle would have a price target in the $15,000s. However, as I mentioned at the beginning of this article, symmetrical triangles are directionally agnostic and can also break to the downside. If the triangle breaks down, the measured move for the breakout would have us testing the $2000–$3000 price range.
For now, the volume is content with continuing to consolidate, but the market is poised for a very strong move that will likely shape the landscape of the market for the next several months. It’s impossible to determine when a market will breakout, so all we can do is hedge our bets and wait.
Summary:
- The market has been consolidating for months in the form of a symmetrical triangle and is tightly wound for a strong, sustained move.
- There is strong evidence of supply absorption in the market which would likely lead to an upward breakout.
- Symmetrical triangles are directionally agnostic and can oftentimes break to the downside.
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