This formation is generated by the fact that a major player (altcoin market maker) for a long time holds one price zone (usually this is the area where the main position was set) and all attempts to raise the price and reverse the trend fail. At one point, the strength and desire to keep this zone are running out and there is a breakthrough of the scalp level (zone of support of the figure).
The Cat Ears shape is a bear formation. It arises only in a bear market and predicts a further decline in prices. Visually, it resembles a combination of the "Double Peak" and "Failed Cup" formations. The figure "Cat Ears" is named because of the apparent external resemblance to the ears of a cat. The figure is a rare, but reliable figure, and gives a clear price goal.
The usual duration of the formation of the "Cat Ears" figure is from 10 to 60 days.
This figure is very misleading in the sense that the presence of a horizontal cluster zone (“scalp”) gives a false impression that the price has reached very strong support. The left and right ears try to deceive the trader, making them believe that the price shows signs of strong interest of buyers. In fact, the return of the price to the scalp line (support) after the formation of the right ear is an indication that interest in purchases is short-term.
"Cat ears" is formed of 6 phases:
1) Downtrend. Price is in a strong downtrend.
2) Pause. The price pauses for a while and fluctuates in sideways movement.
3) "Left ear." The price shoots up, then quickly returns, forming the "left cat's ear".
4) The scalp. The price again fluctuates in lateral movement, forming a "cat scalp."
5) "The right ear." Price fires a second shot, but returns again, forming the "right cat's ear."
6) Breakthrough. Continuation of the downtrend. The price breaks through the scalp line (support line) and the downtrend continues.
Various formation options
"Ears" left / right - can have different heights. The scalp line may be slightly above or below phase 2 (“pauses”).
In most cases, this figure is formed during 6 phases, but in very rare cases it happens that phase 2 - “pause” is absent.
Or vice versa, when phase 2 is very long and volatile, and it appears that the price is on the “reinforced concrete bottom”. But, then further formation of the “Cat Ears” figure - makes it clear that the downtrend will continue. All these variations of this figure have only one continuation - the resumption of a downtrend.
Formation and change.
As one would expect, during the formation of the “Cat Ears” figure, the is usually average or even at low values. Short-term increases may occur at the tops of the left and right “ears”. The lowest is observed in the "scalp" phase (between the "Ears"). Penetration of the Scalp support line can occur with a high , and any attempt to roll back to the scalp line is usually accompanied by a low .
Often, surges can be observed at the beginning of phase 2 and at the lower points of the left ear.
There are sometimes cases when the on the right “ear” is higher than on the left. This is due to the fact that when the price returns to the scalp line after the formation of the right ear, there are many traders who bought at the last local peak and suffer losses. Roughly speaking, traders who believe in growth are trying to get out of position.
Thus, the increased on the right “ear” may be similar to the behavior of the volumes in other cases, when the crowd is also trapped at the top. In the case of the “Cat Ears” figure, the price has already tried twice to go up (left and right “ears”), but could not do this and returned to the scalp line (support). If the price then falls below this line, negative technical factors will appear that will trigger panic sales. The downtrend will continue.
It should be noted that the behavior of volumes is not significant for this figure, except in special cases, since the figure itself is a fairly strong signal.
Setting target when working with a figure.
After breaking through the support on the scalp line, we can expect a decrease in height in percent from the top of the Ear to the level of the Scalp.
It is also important if the price is being traded in your favor, and according to the plan you should already fix the profit, then it is advisable to stay in position while you get additional profit instead of the planned one. But always remember - greed begets poverty.