It is a stretch to say Bitcoin is bullish, but what if bulls were simply resting after a tough “evening” and are just about ready for a new “morning?” A potential, high timeframe bullish Japanese candlestick reversal pattern called a morning star could be predicting just that.
We will take a close look at the possible reversal signal as well as the conditions that would confirm bullish upside.
A “Morning Star” Could Jump Start A Bullish Reversal
Since November 2021, Bitcoin has fallen in an extreme downtrend. Few are willing to purchase crypto until there is clearer evidence of a rebound after a month of intense fear and macro-strange conditions.
This could indicate the beginning of each new day. According to Japanese candlesticks, the signal is known as a morning-star reversal and it is a 3-candle bullish pattern.
The use of Japanese candlesticks was developed by 18th century Japanese rice trader, Munehisa Homma. It wasn’t popularized in the West until Steve Nison published Japanese Candlestick Charting Techniques in the early 90s. Since then, they have become an important weapon in a technical analyst’s arsenal when used in combination with indicators, patterns, trend lines, and more.
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On the 2-week BTCUSD charts, a morning star formation is possible. This suggests that there could be an imminent bullish turn in Bitcoin.
Source: BTCUSD on TradingView.com| Source: BTCUSD on TradingView.com
Supporting a Bullish Bitcoin with Technicals
To make a morningstar, you need to have a downward trend. For what seems like an eternity, Bitcoin has been free falling for almost all of its history. The morning star reverse is described as a big black or red down candle followed by a doji. According to Investopedia, the “middle candle of the morning star captures a moment of market indecision where the bears begin to give way to bulls.”
Doji are a symbol of indecision on the market. The doji formation is completed by bulls who surprise bears with a strong white (or green), upward candle. It erases the end of the downtrend. The pattern is only confirmed when completed, and suggests that the next three to five candles should be in bulls’ favor. This is an ideal bull market scenario, which gives bulls six to ten additional weeks.
Extreme fear and technicals could lead to a reversal. Source: TradingView.com, BTCUSD| Source: BTCUSD on TradingView.com
An evening star, the opposite to a morning-star is what bulls have been sleeping under for several months since it was confirmed (red boxes). Just outside the trading area is the morning star (greenbox), which forms much the same way as the evening stars.
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Other technicals are needed to support candlesticks that have such a nature. As you can see, the price fell back to test the Supertrend line for 2 weeks, which is right at the point where there could be an inverse. Bitcoin may also be entering an expanding triangle pattern in anticipation of the wave 5 surge to new highs. Bitcoin will need to overcome the bearishest macro sentiment that the planet has ever experienced to be able to achieve this.
This morning star could be the sign that bulls see a new dawn.
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Featured image taken from iStockPhoto. Charts taken from TradingView.com