Bukowski's Adam & Adam Double Top: Bearish Outlook for Bitcoin

31 juil. 2019

Bukowski is one of the founding fathers of technical analysis, publishing many books on charting stocks, and explaining how price levels gear sentiment and influence performance. While some of his strategies may only be applicable to stocks many are based on principles of behavioural finance and are applicable in a cross-disciplinary fashion in the context of trading. His work also gave us many of the patterns that we now recognise in price-action; double tops, necklines, and variations of triangular formations.

While there is still a lot of debate as to whether technical analysis works on cryptocurrency, there is a growing consensus that if enough retail traders are employing TA as part of their due diligence, then it must hold some validity.

This chart pattern; the Adam & Adam Doublet Top, is a great indicator for an impending downwards breakout, and spells out a very bearish sentiment for Bitcoin.

The Adam & Adam Double Top is characterised by the following properties:

• An upwards price trend leading up to the formation.
  The valley between the tops measures at least 10%.
  The variation in tops is less than 3%.
  The twin peaks are several weeks apart.
  There is a confirmation close below the valley of the two peaks (labelled "b").
  

While this pattern provides us with an indicator of a potential downwards break out, we need to consider whether this assumption fits a logical narrative.
We have a highly level of resistance above the current price with the valley at $10,624. Bitcoin tried to test the resistance level several weeks ago unsuccessfully, and has now reverted back to a support level at $9,168. These levels are labelled "a" on the chart.

At the same time we see a shrinking price channel from which the price has deviated (label: "c"), and has now started to form a horizontal consolidation region (HCR). We can see on our ADX Trend indicator that D- > D+ pointing to a negative trend, but the ADX remains below 20, indicating that the trend is weak. This weak technical set-up and chart formation points to a potential decrease with the price action tending towards the range indicated by the shaded region (labelled "d").