The formation base in cryptocurrency trading is a key element of technical analysis that helps to determine the level of support or resistance, on which a price pattern (figure) is formed. It serves as a foundation for predicting further price movement and making trading decisions.
What is the purpose of the formation base?
1. Determine the trend
The base allows you to identify where the price "found a bottom" (support) or "hit a ceiling" (resistance) before forming a pattern. This helps to understand whose side the strength is on: buyers or sellers.
2. Forecasting Targets
Many figures (e.g., triangles, flags, "head and shoulders") use the base to calculate potential price movement after a breakout.
3. Risk Management
The base level often becomes a point for setting stop-losses or take-profits.
Examples of popular formations with a base
1. Triangle
- Base — a horizontal support/resistance line.
- How it works: The price narrows between the base and a descending/ascending trend. A breakout of the base signals a continuation of movement.
- Example for crypto: If Bitcoin forms an ascending triangle with a base at $60,000, a breakout above may lead to a rise to $70,000.
2. Double/Triple Bottom
- Base — a level from which the price bounces several times.
- How it works: After testing the base (e.g., $25,000 for Ethereum) several times, a breakout above indicates a trend reversal.
3. Flag/Pennant
- Base — the level at which the pattern starts to form.
- How it works: After a sharp movement (flagpole), the price consolidates. A breakout of the flag's base often leads to a continuation of the trend.
How to use the formation base in crypto trading?
1. Identify the pattern
- Identify recurring levels where the price "bounces" (support) or "reflects" (resistance).
- Use indicators: horizontal lines, Volume Profile, moving averages.
2. Calculate the target
- For the triangle: the height of the figure from the base to the top = potential breakout.
- For head and shoulders: the distance from the head to the neck line (base) = target after breakout.
3. Trading Strategy
- Buying on breakout: If the price breaks the base upward with increasing volume — open a long position.
- Stop-loss: Set below the base for long or above for short.
Example from practice (Bitcoin, 2025)
- Situation: BTC forms an ascending channel with a base at $58,000.
- Action: As long as the price stays above the base, the trend is considered bullish. A downward breakout with volume is a sell signal.
- Target: Channel height $10,000 → upon breakout above, target $68,000.
Risks and nuances
- False breakouts: The price may temporarily break the base and then reverse (use volume confirmation).
- Volatility of the crypto market: Bases on altcoins (e.g., Dogecoin) are often less reliable than on Bitcoin.
- Fundamental factors: News (regulations, halvings) can "break" even a strong technical base.
Tools for analysis
- TradingView: For drawing lines and patterns.
- CoinGlass: Analysis of volumes and open interest.
- Indicators: RSI, MACD — to confirm signals.
Conclusion: The base of the formation is the "foundation" upon which the forecast is built. But always combine technical analysis with fundamental data and risk management.
