It’s a stretch to say that bitcoin is bullish, but what if the bulls are resting after a tough “evening” and gearing up for a new “morning”? A possible, higher time frame bullish Japanese candlestick reversal pattern called Morning Star can predict just that.
Here’s a closer look at a potential reversal signal and the conditions needed to confirm a bullish upside.
A “Morning Star” Could Launch a Bullish Reversal
Bitcoin has been in a brutal downtrend since November 2021. After an entire month of extreme fear and some of the most dire macro conditions in the crypto market, some are ready to buy until there are clear signs of a reversal.
An early signal may be in here, representing the early rise of each new day. The signal is called the Morning Star Reversal Pattern, and is a three-candle bullish reversal pattern according to the Japanese candlesticks study.
The use of Japanese candles was developed by Munehisa Homa, an 18th-century Japanese rice merchant. It did not become popular in the West until Steve Nisson published the Japanese candlestick charting technique in the early 90s. Since then, they have become an important weapon in a technical analyst’s arsenal when used in conjunction with indicators, patterns, trend lines, and more.
Related Reading | Hammer Time: Bullish Signals That Could Save Bitcoin
A Morning Star setup is forming with potential on the 2-week BTCUSD chart, indicating that a powerful bullish reversal is likely to occur in Bitcoin.
The current candle must close above the upper black horizontal line | Source: BTCUSD on TradingView.com
A fast bitcoin with technical support
A prerequisite for becoming a morning star is a downtrend. Bitcoin has been in free fall for what feels like an eternity. A Morning Star reversal is described as a large black (or red) bottom candle, followed by a Doji. According to Investopedia, “the middle candle of the morning star captures the moment of market indecision where the bears begin to give way to the bulls.”
Doji represent indecision in the market. After the Doji is formed, the bulls are surprised with a white (or green) uptrend candle, which is as strong as the bottom candle, erasing the last leg of the downtrend in a flash. The pattern is confirmed only upon completion, and suggests that the next three to five candles should be in favor of the bulls. Since this is a 2 week time frame, that gives the bull market another six to ten weeks in an ideal scenario.
Technicals and extreme fear could set the stage for a reversal | Source: BTCUSD on TradingView.com
The opposite of a morning star is an evening star, which after confirmation has kept the bulls in bed for the past several months (red box). The Morning Star (Green Box) is forming an evening star pattern just outside the trading range.
Related Reading | This Expanding Triangle Pattern Could Be the Last Hope for the Bitcoin Bull Market
This type of candlestick setup should be supported by other technicals. In the chart above, price pulled back down to retest the 2-week supertrend line, exactly where such a reversal could occur. Bitcoin may also complete an expanding triangle pattern before taking the 5th Thrust to new highs. But to get there, bitcoin has to blast through the most bearish macro sentiment the world has ever seen.
Could this morning star be the sign that brings a new dawn to the bulls?
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Featured image from iStockPhoto, Charts from TradingView.com