The key to basing patterns is to eliminate the noise. To do so, we have to simplify the chart and then analyze the details individually.
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Below is another bottoming pattern. At first glance, this chart looks very complicated. Up till the end of 2019, this chart was in a deep bearish trend; then, a sideways range emerges afterwards. These are two completely unrelated scenarios!
How do you make sense of this all?
First, I would take a step back and notice the big picture. What’s the easily identifiable formation here? I see a bottoming wedge. We had the right idea with the resistance across the tops, starting from November 2018. But rather than focus on the bearish trend, let’s take a look at the rising trend line that connects the December 2018 low and the double lows of May and August the following year. If you look closely, we can even see a minor bullish bounce in October off this same trendline. I love it when the price does that!
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Now that we have a basing pattern identified, let’s take a look at the volume landscape and specifically, where the volume spikes. The first volume spike I notice is the bottoming candlestick in mid-December. We’ll take a look closer at this later.
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The next surge in volume was in May and late April when the price was hovering near the mid to top level of the wedge. What’s interesting here is the clustering of large body candlesticks. From the tight cluster of candlesticks, it’s difficult to tell which way the price will breakout.
However, the mid-April volume spikes, associated with the bullish breakout of the clustering we were looking at, does give a slight hand towards the bulls gaining more strength.