Bitcoin (BTC) has spent a better part of the last 24 hours trading a tight range around $6,800.
In fact, the cryptocurrency has been restricted to an increasingly narrow price range for almost a week now, with neither the bulls nor the bears able to force a big move in either direction. As of writing, BTC is changing hands at $6,840 on Bitfinex.
However, while the sideways trading is somewhat dull for observers and traders alike, the market may be about to become more exciting.
According to technical theory, the wider the range and the longer the duration of the consolidation zone, the more violent the breakout tends to be.
The above chart shows, the narrowing price range (represented by the triangle formation) is almost a week old.
The range high is $7,510 and the range low is $6,425. So, bitcoin could see at least a $1,000 dollar move on either side, depending on nature (bullish/bearish) of the breakout.
As of writing, the triangle support is seen around $6,570, while the resistance is lined up at $7,080.
A downside break could mean the potential for a sell-off to $5,500. On the way lower, BTC may find support around the November low of $6,000, as the daily relative strength index (RSI) will likely show oversold conditions by then.
Also note that BTC has created a bear flag (continuation pattern), inside the narrowing price range. A downside break of the flag would signal a continuation of the sell-off from the April 9 high of $7,189 and would open the doors to $6,150 (target as per the measured height method: pole height subtracted from breakdown price).
However, only a convincing break below $6,570 (triangle support, sloping upwards) would revive the bearish view. That said, the bearish flag breakdown could boost the odds of a drop below that level.
On the bull side, an upside break of the triangle may not necessarily bring a $1,000 rally as resistance is lined up at $7,189 – a strong resistance point established by the high volume sell-off. Thus, the bulls need a clear break above $7,189.
A potential bear flag breakdown could be considered as a warning the bitcoin is set to move below triangle support seen at $6,570. Acceptance below that level could prompt a drop to $6,000.
If the bulls take charge, a high volume move above $7,189 will likely set the tone for a break above $7,510 (range high) and a rally to $8,100.