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How To Trade Cryptocurrencies Using The Three Rising Valleys Chart Pattern

Last Updated March 4, 2024 2:56 PM
Andrew Kamsky
Last Updated March 4, 2024 2:56 PM

Key Takeaways

  • Chart patterns reflect market dynamics that aid traders to predict trends through recurring formations on price charts.
  • The Three Rising Valley chart pattern suggests bullish potential with ascending valleys, reflecting growing buyer confidence and accumulation.
  • Pullbacks or throwbacks in the Three Rising Valley chart patterns are healthy correction phases.
  • Bitcoin’s Three Rising Valley pattern offers opportunities for investors and traders to benefit from volatility in the market.

What Are Chart Patterns?

Chart patterns serve as visual representations of the ongoing battle between supply and demand forces in the market. Studying chart patterns allows an investor or trader to understand the psychological dynamics unfolding by seeing literal chart patterns created through time plotted through price.

Interpretation of these chart patterns are somewhat reliable because history tends to repeat itself, and certain patterns can signal potential price shifts or trend confirmations.

Introducing: The Three Rising Valleys (3RV) Pattern

The 3RV is a bullish chart pattern that signals an overall bullish structure within the asset. It is identified by the sequential formation of three valleys, or troughs, on the price chart, with each subsequent valley having a higher low than the previous one. The main characteristics of the 3RV pattern include:

Valley Formation 

The pattern consists of three valleys, each followed by a price recovery. These valleys are marked by temporary price declines.

Higher Lows 

The critical aspect of this pattern lies in the consecutive higher low points of each valley, signaling strengthening demand and accumulation.

Buying Pressure 

The higher lows suggest that buyers are consistently stepping in at higher price levels, reflecting growing confidence and eagerness to enter the market.

Psychological Implication 

The pattern demonstrates a series of market tests where prices briefly dip but swiftly recover,  showcasing buyer resilience and reinforces the notion that the asset’s value is increasing.

Anticipated Breakout 

Traders often interpret the 3RV pattern as a precursor to a bullish breakout, where prices might surge beyond previous resistance levels.

Analysis Of The Bitcoin Current “Three Rising Valleys” Pattern 

In the 3RV pattern illustrated below, shows price reaching a peak and a fall in price back to the upper edge of the third or second elevated low post-breakout, it’s referred to as a pullback or throwback. 

This kind of retracement can offer valuable information about the robustness of the pattern and the driving market forces behind it. Presently, Bitcoin appears to have finalized the 3RV pattern and is undergoing a pullback, with support levels identified between $26K and $24K.

Current Bitcoin Chart
Current Bitcoin Chart

A pullback at the top of the 3RV pattern can have the following implications:

Healthy Price Action 

If the price bounces off the upper boundary of the first or second high of the two valleys, this might suggest that the previous resistance has turned into support, reinforcing the pattern’s strength and identified as the confirmation/support  line.

Potential Momentum Increase 

If the pullback is followed by a renewed upward movement, it suggests that the pattern’s bullish momentum is intact. Traders might interpret a bounce off $26K-$22k as a signal to enter or add to their trading positions.

Psychological Implications Of Three Rising Valleys Chart Pattern

As the pattern evolves, it reflects increasing buyer confidence after each valley, as explained below:

Growing Buyer Confidence 

The ascending lows in the valleys signify that buyers are becoming more confident with each price retracement. This upward progression indicates that buyers are willing to step in at higher price levels, believing in the asset’s long-term potential.

Accumulation And Patience 

The pattern suggests a patient accumulation strategy by traders. As buyers enter the market after each valley, they demonstrate a willingness to wait for favorable entry points rather than chasing rapid price gains.

These psychological factors contribute to shaping the pattern and influence price movements whereby:

  • Positive sentiment: The pattern’s formation suggests that market sentiment is shifting towards optimism and faith in the asset’s value. Buyers are less likely to panic sell during minor price declines, contributing to more stable price movements.
  • Market depth: Increasing buyer confidence can lead to higher trading volumes, indicating a deeper and more sustained interest in the asset. This depth can lead to more consistent price trends.
Market Sentiment Resembling 3RV Bullish Sentiment | Credit: LookIntoBitcoin
Market Sentiment Resembling 3RV Bullish Sentiment | Credit: LookIntoBitcoin

As can be seen by LookIntoBitcoin on-chain analysis Bitcoin has just entered the Optimism/Anxiety phase.

Trading Strategies For The Rising Valley Chart Patterns

When encountering the 3RV pattern, traders may consider the following strategies:

Entry Points

A common approach is to enter a long position once the price breaks above the upper boundary of the pattern, confirming the pattern’s bullish nature. This breakout can signal the potential start of an upward trend. However, as the price keeps going up the chances of this being successful diminish because of pullbacks/throwbacks.

Stop-Loss Levels 

Set stop-loss orders just below the lowest point of the pattern or the most recent valley. This guards against potential false breakouts and mitigates losses if the pattern fails to materialize.

Profit Targets

Consider setting profit targets based on the projected height of the pattern. Measure the vertical distance between the lowest valley and the upper boundary, and apply this distance from the breakout point.

Confirmation Indicators

Use additional technical indicators like moving averages or momentum oscillators to corroborate the pattern’s validity and strength before entering a trade.

Risk Management

Determine the appropriate position size based on your risk tolerance and overall portfolio strategy. Avoid allocating too much capital to a single trade.

2022 Three Rising Valley Chart Pattern Vs. 2023 Bitcoin Pattern: A Technical Comparison

June to August 2022

Between June and August 2022, Bitcoin exhibited a smaller but notable 3RV chart pattern, depicted on the 4H time period, shown below, marked by three successive higher lows that formed bullish sentiment and took the price from $18K to $24K in the 2022 bear market. 

Prior 3RV BTC Chart Pattern | Bearish Environment
Prior 3RV BTC Chart Pattern | Bearish Environment

However, this positive trend changed mid-August when the price chart flipped bearish. Even though the structure seemed strong it was unable to withstand the bad news that was coming out in the summer of 2022. .

Market Decline After 3RV Chart Pattern Breakout

The reversal can be linked to the overall market decline in 2022, worsened by events like Celsius’s decline in July, Terraluna’s bankruptcy in May, and FTX’s later bankruptcy. This occurred while the FED was rapidly raising rates to 5.5%, from zero, beginning in March 2022.

Amidst all these bearish fundamentals, maintaining the 3RV bullish momentum proved to be a formidable challenge for Bitcoin’s price trajectory. It later went on to make new lows.

Where Can Bitcoin Price Go Once A Breakout Takes Place?

A few points to try to forecast where price moves should this three valley chart pattern play out:

Width And Height

The 3RV pattern’s width and height are features to consider, with tall and narrow patterns displaying stronger bullish behavior in bull markets and slightly improved performance in bear markets. Robert Bulkowski’s research indicates tall patterns outperform shorter ones and narrow patterns outperform wider ones.

Current Bitcoin Chart Pattern

Bitcoin’s current chart, since early 2023, shows a 100% price surge, resembling the bullish characteristics of a tall 3RV pattern.

Predictions suggest Bitcoin could make a significant move to the upside upon finding its local bottom and completing its pullback.

Possible BTC Price Appreciation Forecast
Possible BTC Price Appreciation Forecast

Bitcoin Price Target: The Bull Case

Taking the floor of the 3RV to the top of the pattern, an estimated breakout price can be taken. Analysts often measure the percentage difference between the third high of the third valley down to the first low. In this case this equates to roughly 88%.

An 88% increase from the 3RV high yields an approximate breakout Bitcoin price target of $48K to $52K, on the assumption that the asset is in a bull market. Keep in mind, for this to play out Bitcoin would need to get above an area of formidable resistance of $30K-$32K. Should this area act as resistance this price target might not develop. 

Risk Management

In the event of a breakdown and rejection of the $30K-$32K area, swing traders are encouraged to use stops at comfortable levels for the individual, should the bull case not play out to safeguard one’s capital.

Conclusion

As we consider the psychological implications, it becomes evident that the 3RV pattern is not just lines on a chart, it’s a reflection of investor psychology. Increasing buyer confidence and patient accumulation strategies that contribute to the pattern’s formation and, consequently, influence price trends. 

These factors shape the markets in ways that transcend simple price action, creating a delicate dance between sentiment and supply-demand dynamics.

“The three stages of a bull market”: the first stage, when only a few unusually perceptive people believe things will get better, the second stage, when most investors realize that improvement is actually taking place, and the third stage, when everyone concludes things will get better forever.” – Howard Marks

Disclaimer

While chart patterns offer educated guesses about potential price movements, no prediction should be taken as absolute truth. The cryptocurrency market is inherently volatile, and multiple factors can influence price dynamics. As always, traders and investors should exercise caution, supplement their analyses with other indicators, and be prepared for unexpected market shifts.

FAQs

What are chart patterns, and how do they influence trading decisions? 

Chart patterns are recurring formations on price charts that traders use to predict market trends.

Can you explain the three rising valleys (3RV) pattern in Bitcoin trading? 

The 3RV pattern is a technical analysis chart pattern indicating potential bullish price movement. It involves the sequential formation of three valleys, or troughs, on the price chart. Each subsequent valley has a higher low than the previous one, reflecting increasing buying pressure over time. This pattern holds a 90% bullish probability of upward price movement as time passes during bull markets.

How does a throwback at the top of the 3RV pattern impact Bitcoin’s price action? 

A throwback occurs when the price retraces back to the upper boundary of the third or second higher low after breaking out above it. This throwback behavior provides insights into the pattern’s strength and underlying market dynamics. 

What are the psychological implications of the three rising valleys pattern? 

The ascending lows in the valleys signify growing buyer confidence, as they are willing to enter the market at higher price levels. This demonstrates a patient accumulation strategy, where traders await favorable entry points rather than chasing rapid gains.

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