Ethereum (CRYPTO: ETH) was trading slightly higher on Saturday, in continued consolidation, after falling 10% lower over the combined Tuesday and Wednesday 24-hour trading sessions.
The sharp decline, paired with the subsequent three days of sideways trading, has settled the crypto into a bearish flag pattern on the daily chart. The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines.
- For bullish traders, the "trend is your friend" (until it's not) and the stock may continue to rise upwards within the following channel for a short period of time. Aggressive traders may decide to purchase the stock at the lower trendline and exit the trade at the higher trendline.
- Bearish traders will want to watch for a break down from the lower descending trendline of the flag formation, on high volume, for an entry. When a stock breaks down from a bear flag pattern, the measured move lower is equal to the length of the pole and should be added to the highest price within the flag.
A bear flag is negated when a stock closes a trading day above the upper trendline of the flag pattern, or if the flag rises more than 50% up the length of the pole.
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The Ethereum Chart: If the bear flag that was created between Tuesday and Saturday is recognized, the measured move could see Ethereum plunge down below the $3,000 level in the future. Bearish traders and investors can watch for a break down from the bottom ascending trendline of the pattern on higher-than-average volume, which would indicate the algorithms have recognized the pattern.
- If Ethereum continues to trend up higher over the coming days, and recaptures support at the eight-day exponential moving average (EMA), it will indicate that the bull flag is not in play.
- It should be noted that when a bear flag is evident on a daily chart, traders and investors can switch to the weekly chart, which sometimes shows a bull flag pattern is being developed, which is the current case for Ethereum. If the crypto breaks down from the bear flag pattern on the daily chart but doesn’t receive momentum, the bull flag pattern on the larger timeframe may be the dominant pattern.
- Within the flag, Ethereum is trading in an uptrend, with the most recent higher high printed on Friday at the $3,313 level and the most recent higher low possibly printed on Saturday at the low-of-day price. If the uptrend pattern continues, Ethereum should rise up to print a higher high over the coming days, which will allow the crypto to regain the eight-day EMA and negate the bear flag.
- Ethereum has resistance above at $3,240 and $3,413 and support below at $3,057 and $2,890.
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