Usually, when we open the Binance trading software, we can see the K-line chart of Bitcoin. However, not every time and price point is suitable for trading; otherwise, it is easy to get stuck at high points. Therefore, we must wait for the bottom structure or top structure to appear, as these are the best entry points. This involves your skills and understanding. Next, I will teach you how to distinguish the bottom and top patterns from K-line shapes.
1. W Bottom
(1) Concept: The Double Bottom, also known as 'W Bottom', refers to a stock price chart pattern formed when the price reaches approximately the same low point twice in succession. The line connecting the two lowest points is called the support line. Its formation occurs at the end of a downtrend, as the selling volume of stocks decreases, and when the stock price drops to a certain level, it begins to stop falling.
(2) Double Bottom Features:
① The Double Bottom is simply the inverted Double Top, forming a W shape, which indicates a rebound before the end of a downtrend, followed by another drop, with the decline tending to ease, stopping near the previous low price, and starting to rise.
② When the neckline is broken, a large bullish position appears, meaning that the bullish position when the double bottom rises from the second bottom will be higher than when it rises from the first bottom, confirming the double bottom.
2. M Head
(1) Concept
The double top, also known as 'Double Top' or 'M' head, is one of the more common reversal patterns in the K-line chart, formed by two relatively close high points. Its shape resembles the English letter 'M', hence the name. During a continuous upward process, when the stock price rises to a certain price level and trading volume significantly increases, the stock price begins to turn back; at a certain position during the decline, the stock price rebounds again, but trading volume is slightly reduced compared to the first peak. After rebounding to near the previous high, it drops again and breaks below the low point of the first pullback, forming a double top pattern with a trajectory resembling the letter M.
(2) Features
The Double Top pattern forms after the stock price rises to a certain stage, appearing with two peaks, referred to as the left peak and right peak. Theoretically, the two high points of a double top should be roughly the same, but in actual K-line trends, the left peak is generally slightly lower than the right peak, with a difference of about 3% being common. Additionally, a horizontal line drawn at the low point formed after the first peak (left peak) creates what is commonly referred to as the neckline. When the stock price rises again and falls below this horizontal line (neckline) support, the double top pattern is officially declared formed. During the formation of the double top, the trading volume is larger for the left peak than for the right peak. The trading volume shows a decreasing trend, indicating that the buying power is weakening in the second rebound process, suggesting that the stock price may have reached its peak. After the double top pattern forms, the stock price often shows a rebound during the downward process, but the rebound strength is not strong, with the neckline position forming strong resistance.
3. Head and Shoulders Bottom
(1) Concept
The analytical significance of the Head and Shoulders Bottom is no different from that of the Head and Shoulders Top; it tells us that the previous long-term trend has reversed. The stock price drops repeatedly, and the second low point (head) is clearly lower than the previous low point, but quickly bounces back. In the next drop, the stock price does not fall to the previous low point, gains support, and rebounds, reflecting that the bullish strength is gradually changing the past bearish market situation. When the resistance line (neckline) of the two rebound high points is broken, it indicates that the bullish side has completely defeated the bearish side, and the buyers have completely taken control of the entire market.
(2) Features
A. This is a long-term trend reversal pattern, usually appearing at the end of a bear market.
B. When the trading volume at the most recent low point is higher than that at the previous low point, it suggests the possibility of a Head and Shoulders Bottom appearing; when the stock price does not fall to the last low point during the third drop, and trading volume continues to rise, experienced investors will seize the opportunity to build positions.
C. When the neckline of the Head and Shoulders Bottom is broken, it is a true buy signal. Although the stock price has increased significantly compared to the lowest point, the upward trend has just begun, and investors who have not built positions continue to buy.
D. After the neckline breaks, we can predict how high the stock price will rise based on the minimum price measurement method of this pattern. This measurement method involves drawing a vertical line from the lowest point of the head to the neckline, then measuring the same length upward starting from the point where the right shoulder breaks through the neckline. The price obtained from this measurement is the minimum price that the stock will rise to.
4. Head and Shoulders Top
(1) Concept
Head and Shoulders Top is one of the most common reversal pattern charts. The Head and Shoulders Top is a bearish pattern that appears at the end of an upward trend, consisting of the left shoulder, head, right shoulder, and neckline. During the formation of the Head and Shoulders Top, the trading volume is the highest at the left shoulder, slightly lower at the head, and the lowest at the right shoulder, showing a decreasing trading volume.
(2) Features
A. Left Shoulder Part - After a sustained period of upward movement, with large trading volume, anyone who bought in at any time in the past is profitable, leading to profit-taking and causing a short-term drop in stock price, with trading volume significantly decreasing compared to its peak.
B. Head - After a brief pullback, the stock price rises strongly again, and trading volume increases accordingly. However, the peak trading volume is noticeably lower than that of the left shoulder, and after breaking above the last high point, the stock price retreats again. Trading volume also decreases during this pullback.
C. Right Shoulder Part - The stock price drops close to the previous pullback low point and then gains support to rise again. However, the market investment sentiment has significantly weakened, with trading volume noticeably decreased compared to the left shoulder and head. The stock price fails to reach the head's high point before retreating, thus forming the right shoulder part.
D. Breakthrough - The right shoulder peak drops and breaks through the neckline connected by the left shoulder bottom and head bottom, with the breakthrough exceeding 3% of the market price.
