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Benzinga
Benzinga
Business
Melanie Schaffer

Why Ethereum Classic Could Be Headed For A Massive Reversal And How To Play This Pattern

Ethereum Classic (CRYPTO: ETC) was trading flat on Wednesday in a second day of consolidation following an 8.2% plunge on Monday, which was partly caused by a bearish day in both the general markets and the cryptocurrency sector.

When Ethereum dropped on Monday, it tested support at the descending trendline of a falling channel pattern and wicked up from the area, further confirming that the pattern the crypto has been trading in since March 23 is still intact.

A falling channel pattern is created when a stock or crypto forms a series of lower lows and lower highs between two parallel trendlines. The pattern is bearish for the short term, but can be bullish down the road.

  • For bearish traders, the "trend is your friend" (until it's not) and the stock or crypto is likely to continue downwards. Aggressive traders may decide to short the stock or crypto at the upper trendline and exit the trade at the lower trendline.
  • Bullish traders will want to watch for a break up from the upper descending trendline, on high volume, for an entry. When a stock or crypto breaks up from a descending channel, it's a powerful reversal signal and indicates a rally is likely in the cards.

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The Ethereum Classic Chart: Ethereum Classic’s most recent lower high in the falling channel was printed on April 7 at the $44.66 level, and the most recent lower low was created at $35.75 on April 11. On Tuesday and Wednesday, Ethereum Classic was in the process of printing a double inside bar pattern on the daily chart, which in this case leans bearish because the crypto was trading lower before forming the inside bars.

  • Traders and investors can watch for a break up or down from Monday’s mother bar later on Wednesday or on Thursday to gauge future direction. If Ethereum breaks bearishly from the mother bar, bullish traders and investors can watch for a reversal candlestick to print if the crypto drops back down to the bottom descending trendline of the channel in order to take a position.
  • If Ethereum Classic breaks up bullishly from the inside bar pattern, traders will want to see if the crypto is able to regain support at the 200-day simple moving average. If Ethereum Classic does, the crypto may rise up to test the upper descending trendline of the channel as resistance.
  • On Wednesday, Ethereum Classic was trading on lower-than-average volume, which indicates there is a low amount of interest in the crypto. The volume in Ethereum Classic has been steadily decreasing over each 24-hour trading period, which indicates both buyers and sellers are leaving.
  • Decreasing volume is often followed by a burst of high volume. If big bullish volume eventually comes in to break Ethereum Classic up from the channel, a massive reversal could be in the cards. If big bearish volume comes in to take control of the crypto, it could lose support at the 50-day simple moving average, which could be bearish for the longer-term.
  • Ethereum Classic has resistance above at $38.95 and $41.41 and support below at $35.38 and $32.17.

See Also: Is Apple Planning A Crypto Foray? Job Posting Sets Off Rumors 

Photo: Courtesy of ETC on Flickr

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