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Why the Bitcoin price is falling - shoulder-head-shoulders formation

 


The Bitcoin price has fallen sharply in the past few weeks. But why is that exactly? This was due to a head-and-shoulders formation that had formed over the past few months. This formation is a bearish trend reversal formation. But how exactly is such a formation structured? Today we will explain to you how a shoulder-head-shoulders formation is constructed and what you should consider when using this pattern


A shoulder-head-shoulders formation, as the name suggests, has two shoulders and a head. The head lies between the two shoulders and is the high point. The shoulders are under the head and find support at what is known as the “neckline”. That neckline in this case was around $41,140. Necklines are mostly normal horizontal supports as well. As soon as the neckline breaks, expect the Head-Shoulders to break out.



The course of a shoulder-head-shoulders formation is as follows:

1. The course rises (important: the course MUST rise. Otherwise the formation would be invalid)

2. A high is formed with subsequent correction (beginning of the neckline)

3. A higher high is formed. This high could be classified as a higher high. However, is the head of the formation.

4. Price falls back down to the neckline and finds support

5. A trader can expect a head and shoulders formation to form

6. Another shoulder is formed which is about the high of the other

7 Price moves back towards the neckline and finds momentary support or breaks out outright

8. Price falls a little and then rises again to test the neckline. Thus, the breakout is confirmed (This procedure is not strictly necessary, just provides confirmation)

9. The target / next support is targeted.




You should note that

A shoulder-head-shoulders formation is not directly a valid formation just because we have two shoulders and a head. Price needs to form this pattern after rising because the pattern is a trend reversal pattern. Otherwise it is invalid.



In the best case, the volume on the left shoulder is higher than on the right shoulder. Generally for formations, the volume just before the breakout should be rather small in order to experience an explosive breakout. This property is not necessary for the head-and-shoulders formation to be valid. However, it would be good if the volume matched. This gives you a higher chance of success.

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