Bitcoin has a cup and handle forming. Cup and handles are one of my favorite patterns, and the pattern in Bitcoin is “ideal”.
There are a few versions of the cup and handle that I trade.
The one forming in Bitcoin is what I call a “technical turn around” cup and handle. It forms following a downtrend. It represents a potential major turn around on the long-term charts. We haven’t turned the corner yet! The price needs to break higher from here.
The bitcoin cup and handle is ideal. That doesn’t mean it will necessarily have a massive breakout, but patterns that do result in big moves often have these characteristics.
- The handle is well-formed; it started forming in May.
- The price has already gained traction to the upside. We aren’t sitting near lows anymore.
- The handle has contracting volatility and volume. Big moves often happen right after volume gets super low. It is super low now.
- The tightness of the consolidation is attractive for a high reward:risk trading opportunity.
Bitcoin Price Targets
Following a pattern like this, and based on prior precedent, a 50% rally is realistic. That would take the price to the $14,000 region.
With the tight consolidation forming now (within the handle) risk could be kept to about 5%, providing a roughly 10:1 reward to risk. This could change. The price hasn’t broken out yet, so the size of the consolidation when the breakout occurs could change.
If this really is a technical turn around, that means the long-term trend reverses to the upside. $19,000 is the next target, about 100% from current levels.
From a technical perspective, there is a valid argument that the trend has already turned up. The rally that started 2019 ended the prior downtrend. Mid-2019 to early 2020 was the correction, and now we are commencing the next wave of the uptrend. This would be the second wave higher, which is often more powerful than the first. That theory also puts the target between $14,600 (same size as the first wave) to $21,300 (1.6x first wave).
While those big forecasts are fun, I don’t put much stock in them. The historical precedent on this type of pattern is about 50% upside. If the price is running quickly, use a trailing stop loss after that to catch some remaining bull fuel.
A more conservative target is also fine. 3:1 to 5:1 reward:risk is where I put many a target. If risking 5%, take profit at a 15% gain, or 20% (4:1) or 25% (5:1). All good targets in this case. I favor 4:1 or higher in this case.
The bitcoin futures have very similar price levels and targets.
Alternatives to the Bitcoin Cup and Handle
Hive Blockchain (HIVE.V, HVBTF) has sort of a similar structure. It isn’t as nice though.
Riot Blockchain (RIOT) has moved much aggressively to the upside off its low. It has a cup and handle, but what I call an “above the cup handle”. The handle is occurring above the prior swing high.
Reality Shares ETF Trust (BLCN) already broke out of its cup and handle at the start of the month. So did Amplify ETF Trust Blockchain Leaders (BLOK).
Control risk with a stop loss or know your exit points, both to the upside and downside, and then stick to them.
Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.