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What's a Failed Breakdown?

Updated: Jan 19, 2022

Technical Analysis 101: Failed Breakdowns -> The Crypto Bear Trap???



Thanks for taking the time to read today's blog post where we look at failed breakdowns, where the price of an asset mean reverts off a previous low creating a failed breakdown and a powerful thrust upwards in price.

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Sometimes when we enter a position or investment we get in at a really great price! Recently, last week on @wolf_financial I gave an interview on how we wanted to start getting long some bigger cryptocurrency plays as the risk/reward was in favors for longs and taking profits on Ethereum hedges ($ETH/USD). Please find the recording here (You can find me talking at the 53 minute mark): Good Morning Fintwit Space Hosted by @StockMKTNewz

Surely enough we got a bounce that morning that followed through on a very nice 4 day bounce! (we've talked about taking short term profits after a 4 day bounce #essextradingtips)

Remember, it's important to take profits and pay ourselves, this what being disciplined helps us do on our trading journey and compounds our portfolios long term. There will always be another trade or investment, but the time your capital is locked up in a bad trade is an opportunity cost to you.

So what happened recently for me to get interested in going long #bitcoin?

A failed breakdown!

What are failed breakdowns I am sure asking yourself. They are great spots to look for potential opportunities in the market where price falls below, stops out long traders and then reverses to create a short squeeze as well where institutions that got stopped out are r-re-entering there positions driving the market price higher.

This happened in Bitcoin recently on January 10th, 2022 when we broke two previous lows of $40k denoted by the orange line on the chart below and the flash crash low on 12-4-2022. From there we got a swift whipsaw in the opposite direction, amazing right! If this price holds we are looking for a return to $46,578 which is 32.6% retracement from our current swing low where we bought.

We do have some initial resistance levels at $44,342.5 and will look to add to the position if we break higher. A good rule of thumb is to cut losers and add to winning positions. We'll get to some advanced techniques in the future, for now we can keep it simple and add above $43,487.

Bitcoin Daily Chart from showing a failed breakdown with Fibonacci Analysis
Bitcoin Failed Breakdown at Orange Trendline

This is the advantage of being patient, waiting for the trade setup and then entering a position that we like. As you have read price is all that matter to us when we approach the markets, we don't care if El Salvador's debt is trading at distressed levels or if Nayib Bukele tweets "BREAKING: EL SALVADOR DGAF", all we care about is price and what is telling us.

Politicians lie, market participants lie, but price doesn't!

What's also fascinating is that the chart patterns that we use in the market seen below, which is the 'Reverse Head and Shoulders Chart Pattern' (sample provided below from can be found on the daily chart of bitcoin above. The image below gives us an understanding of how the pattern plays out, note we have not reached that neckline support yet!

Neckline Support of Head and Shoulders Pattern
Head and Shoulders Bottom

The neckline or this $40k level in #bitcoin is a very important level for the market, and us as market participants, as a break below that level in this pattern would signal more selling by institutions and margin calls for traders that are over leveraged in the market. For now, we are positive on any initial positions we have green in the market and can take profits if below $42k and re-enter if we hold the neckline.

Remember to keep being disciplined and trade with the market is from of you and not the one you want.

Bitcoin Daily Chart Inverse head and Shoulders Top holding Neckline of $40k
Bitcoin Daily Chart Inverse head and Shoulders Top

Trade Confidently,

Miguel Ferreira (@wizdaytrader)


Essex's Trading Quote of the Day (QotD)

“Price is the final arbiter of truth."

Miguel Ferreira quote on the @Wolf_Financial SquareSpace



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