Dubbed as Head and Shoulders (H&S), the pattern develops when an asset forms three peaks atop a common baseline. The outside peaks, known as Shoulders, are close in height, while the middle one, called the Head, is the highest.
The H&S pattern is completed when the asset breaks below its baselines support, with high volumes, confirming a negative breakout. The so-called neckline also serves as the most common entry point for bearish traders as they target deeper downside levels. Though not every time, an H&S pattern’s profit target comes to be equal to the distance between the pattern’s high point and its neckline.
All-time low ahead
Peter Brandt, CEO of Factor LLC — a global trading firm he established in 1980 — sees the XRP/BTC instrument painting an H&S pattern. In a tweet published early Friday, Brandt raised speculation that the bearish indicator might prompt XRP to turn into “a tidal wave” against Bitcoin. The veteran trader added:
“Completion of the [H&S pattern] would set [XRP/BTC] target at all-time-lows.”
The total distance between the H&S pattern’s top and its baselines comes out to be around 1,794 satoshis. Meanwhile, the neckline support coincides with 2,120 satoshis. Therefore, the profit target in XRP/BTC’s case is (2,120–1,794) — i.e., 326 satoshis.
Support levels ahead
But as XRP/BTC approaches its record low levels, the pair would still need to pass through a series of strong support levels.
The XRP/BTC exchange rate bounced off its 200-day simple moving average (200-day SMA; the saffron wave) support at 1,696 satoshis. Should the pair sustain above the wave, the likelihood of retesting the H&S neckline around 2,120 satoshis is high. Meanwhile, a close above 2,120 satoshis would invalidate the H&S structure.
On the other hand, breaking below 200-day SMA exposes XRP/BTC to the next line of support near 1,555 satoshis. The level was instrumental in pushing the pair up by more than 170% in November 2020. Nonetheless, its Volume Profile shows a weaker trading activity in recent history, raising possibilities that it won't be able to handle strong selling volumes as the H&S breakout accelerates.
The last line of defense, per the Volume Profile indicator, sits at 847 satoshis, more than twice above the H&S profit target of 326 satoshis.
Against the United States dollar, XRP continued trending lower in its months-old descending channel pattern, while promising short-term upside opportunities.
The XRP/USD rebounded by up to 44.53% after testing the Channel’s support trendline on Tuesday. The pair’s move uphill had it test $0.69 as its interim resistance as bulls targeted an extended push toward $0.78.
The $0.69 level has served as the resistance between November 2020 and April 2021. Meanwhile, the $0.78 level capped XRP/USD from extending its downside bias throughout May 2021.
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