How to Trade Parabolic Patterns (Will History Repeat Itself?)Hello traders. Here I would like to give my take on whether if we are in a euphoric bullish pattern: the parabolic curve. Parabolic Arc chart patterns are generated when a steep rise in prices are caused by irrational buying and intense speculation. For Bitcoin, the speculation is not based purely on the fundamentals, but more based on the fractals of what we have seen within Bitcoin's past. Although short, the history of Bitcoin's pattern has usually been generally correct - showing often similar fractals within the charts. There can always be a first in terms of breaking historical patterns, but it's important to note that we have been keeping incredibly rhyming patterns over the years.
Parabolic Arc patterns continually makes higher highs and lower lows in the beginning stages but can be volatile in the exhaustion and reversal stages, especially around base 3. The reason why base 3 becomes the most profitable is because many short traders are forced out of their positions usually creating an excess steep of supply for buying. This in return drives price to base 4, which is the most profitable stage within the parabolic trend.
Irrational buying in the public generates a strong rally to push prices vertically, followed by a steep sell off. Examples of this market types are the NASDAQ bullish markets during 1990–2000 (retraced 80%) and Gold prices from 2000–2011 (retraced 62%). Bitcoin did the same thing back in 2018, with retracements of over 80%.
Parabolic arcs are a reversal pattern and has a very predictable outcome - if history repeats itself. As we may be approaching a breakout of a base 3, we can see incredible gains. Remember, the most important thing for this post is the historical comparisons. There is no reason for it to happen, and can change course ANY moment. Although they are predictable, they are relatively difficult to trade since the market sentiment is bullish and may be relatively tough to point reversals to trade, especially when entering unknown prices (it becomes very difficult to understand the real price of the asset).
In summary, the basic ideas behind the Parabolic Arc pattern is:
- Pattern is generally easy to spot but difficult to trade with excessive volatility.
- Most Patterns retrace to 62–78% of its rise. 50% retracement should be the first target.
- You do NOT want to overstay in your trades. This is a perfect testimony of what happened back in 2018. MANY got trapped.
- Do not expect the price to return to Parabolic Arc highs for a very long time.
Trade Safe.
X Force
