Cryptocurrency analysts have sounded the alarm on Dogecoin with the emergence of a classic chart pattern, known for predicting downward trends. Technical Analyst Josh Olzewicz, @CarpeNoctom, Putting a mark A possible head and shoulders (H&S) formation is on the 12-hour DOGE/USD chart on X, indicating a potential significant price decline if the pattern is validated.
The H&S pattern is a technical indicator that is traditionally viewed as a bearish signal within the trading community. The pattern consists of three peaks, the central peak (head) is the highest and the two outer peaks (shoulders) are lower and approximately equal in height. The line connecting the lowest points of the two bottoms (the neckline) can be horizontal or sloping and represents a critical support level.
Dogecoin should hold $0.14
In the case of the 12-hour Dogecoin chart, the price has completed the left shoulder and head, with the right shoulder currently forming. The neckline for this H&S pattern is set at approximately $0.14, Olszewicz explained. This level is crucial. A decisive break below may confirm the bearish outlook suggested by the head and shoulders formation.
Other technical details on the chart are Fibonacci retracement levels, which are horizontal lines that indicate where support and resistance are likely to occur. It is based on Fibonacci numbers, a famous sequence in mathematics and nature to fit into.
Here, the 0.5 Fibonacci level aligns with the left shoulder around $0.18, while the 0 level coincides with the peak at around $0.23. These levels are key to identifying potential support and resistance areas in the market.
Olszewicz has also highlighted the expected target area based on the typical behavior of the H&S pattern. This downside target is determined using the height of the pattern from the top of the head to the neckline, projecting a downside from the break point of the neckline. The target box, in green, shows a potential decline from $0.10 to $0.09, coinciding with the 1.618 and 2.0 Fibonacci extension levels. A drop to this level could cause prices to collapse by 40%.
The importance of the H&S pattern lies in its reliability as a trend reversal signal. It is validated when the price breaks below the neckline after forming the right shoulder. For traders and investors alike, this pattern serves as a cautionary tale to prepare for potential downside risks.
As of Olszewicz's latest chart, the neckline has not been breached, and the pattern has not yet been confirmed. It is crucial for observers to keep a close eye on the $0.14 level, as a break below it is likely to activate selling, fulfilling H&S's prophecy. However, until such a break occurs, the pattern remains a watchful indicator and not a surefire trend reversal.
In short, the Dogecoin price chart is showing signs that could worry bullish investors. If history is any guide, the emerging H&S pattern, which is being closely watched by analysts like Olszewicz, points to a potential downward move in Dogecoin value in the near future. However, only a decisive break below the neckline will confirm the validity of this pattern, turning a watchful outlook into a bearish one.
At press time, DOGE was trading at $0.1509.
Featured image created with DALL·E, chart from TradingView.com
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