Bitcoin (BTCUSD) may have been late to the party compared with gold prices and the Nasdaq 100, but its price reached a new 2020-high last week. In fact, the price managed to breach a multi-year triangle pattern, with an objective of $20,220, so the bulls had a lot to cheer. Having said that, as with many things in life, great rewards do come with significant risks, and the market experienced this on Sunday morning when Bitcoin’s price dropped by about 12.5% in a relatively short period of time.
Moreover, Bitcoin Cash (BCHUSD), an improved version of the original Bitcoin, dropped by 28%. Late investors must have choked on their morning coffee, as the decrease happened rather quickly, with a majority of losses happening within just ten minutes.
Yet – as quickly as the price fell – it recuperated about 50% of its drop, so higher prices despite the shakeout are likely.
BTCUSD: Here is why I think the price might add to its gains
The price triggered a breakout from a rectangle pattern. We create this pattern by drawing a trend line via the all-time high of $19632, the 2019-high, and the June 2020 high of $10,522. We can also draw an upward sloping trend line via the March 2017 and December 2018 lows, and the March 16, 2020 low.
As we can see in the first chart below, the price remains outside of the triangle, and there is a reasonable chance that the price will pick up in the weeks ahead. A strong push back into the triangle would normally end the pattern swiftly.
If we wait for a strong correction there is a reasonable chance that investors that are not already long will not get an entry. Instead, I think they will be happy to see a slide to the $10,500 to $11,000 interval. The $10,500 low is a level just below the low from Sunday, as seen in the chart below.
In the short-term chart seen below, one can also argue that a bearish head-and-shoulders pattern may be forming, but given the overall bullish trend, I think this short-term pattern will morph into something different in the days ahead.
If the price does indeed turn higher from the above-mentioned interval, and it will reach the June 2019 high of $13,945, the risk-reward ratio will be 5.29 times the risk. if we reach the pattern target, the risk-reward ratio would mean a result of 16.53 times the risk.