- A double-tops pattern is a price action pattern formed when price fails to break through a previous high during an uptrend.
- If someone is holding a buy position while such a pattern is forming, it could be a good time to start being cautious of a possible retracement.
Last week, we analyzed the possibility of a double-tops pattern that had formed on the 1hr chart, signifying a short-term retracement. However, we also highlighted some key levels that had to be broken for there to be any significant move to the downside. Soon after, price fell from the $46,133 level and found support at the $43,917 level. This level offered bullish momentum that propelled price to reach the $48,023 level. This is the highest level that price has hit since the start of June.
However, this new high has acted as a new resistance level since then. At the time of this writing, price had formed another double-tops pattern at the $48k zone.
What is a double-tops pattern?
A double-tops pattern is a price action pattern formed when price fails to break through a previous high during an uptrend. The image below illustrates this pattern;
Image from tradingview.
When this pattern is formed, it can be interpreted to mean that bullish momentum is fading away, at least for a little while. If price is failing to break through a previous high, then it is possible that a significant number of buyers are liquidating their positions at this level. Therefore, two things are highly likely to happen in this scenario; price will consolidate or retrace. Therefore, if someone is holding a buy position while such a pattern is forming, it could be a good time to start being cautious of a possible retracement.
An Application of this knowledge to the current Bitcoin’s price action.
To begin with, after price formed a double-tops pattern last week around the $46,500 level, price is now at the $45,800 level. Therefore, irrespective of price having made some fluctuations during the past week, it has not managed to stay above last week’s double-tops. Now with the second double-tops, the possibility of price consolidating or retracing is higher. Therefore, until price breaks and retests the $48k level, we can anticipate short-term exhaustion of the current bullish momentum. The chart below shows the 2hr chart of the current Bitcoin price action;
Image from tradingview.