Polkadot plots 25% bearish correction setup—here’s how

Polkadot, DOT
Image by Marlon Sommer from Pixabay
  • Bearish formation could shave additional 25 percent off the DOT price.
  • Can the token recover and is it a good idea to buy the dip?
  • Polkadot’s bullish prospects against Ethereum.

YEREVAN (CoinChapter.com) – DOT, the native token of Polkadot Interoperability Blockchain, traded at $15.15 in the London session Monday. Meanwhile, it formed a bearish setup that could take the price down to $12.99, i.e., 25 percent lower than the current value.

In detail, the token formed an ascending triangle continuation pattern. The upper trendline was horizontal, capping the breakout attempt. The bottom trendline with an ascending slope kept the token from crashing, providing support. When the two trendlines converge, exhausting the formation, the token is likely to continue the bias preceding the pattern.

The ascending triangle formed after a sharp decline on June 22. If the formation pans out, it might bring further losses and put the price near the 12.99 support line, the lowest value since January 2021.

Polkadot (DOT) in an ascending channel. Source: DOTUSD on TradingView.com
Polkadot (DOT) in an ascending channel. Source: DOTUSD on TradingView.com

Instead of exhibiting a pronounced bias in the last few sessions, the price moved sideways, hinting at abandoning the formation. DOT has hovered around the triangle support since July 8, still not dropping below or picking up toward the resistance. Moreover, the upward movement was hindered by the 20-day exponential moving average (EMA-20, blue wave on the chart above). The indicator could also serve as support if DOT manages to trade above it consistently.

Also read: Kusama rallies 20% as the parachain auctions continue.

Is Polkadot a good long-term investment?

Benjamin Cowen, a crypto analyst at CryptoQuant, offered his thoughts on whether Polkadot is a profitable investment in the long run, despite the recent setback. He claimed that smaller altcoins are a more risky investment, as they are more volatile. Thus, they could offer higher rewards in the short term but are also associated with more risk. On the other hand, Polkadot is a large platform, a substantial competitor to Ethereum, and has a vast user base.

The analyst also asserted that given the correlation between Polkadot and Bitocin, the former is not likely to recover while the latter consolidates. Thus, at this point, making long-term predictions on the 9th largest crypto ($14.5b) is not wise. However, if the market manages to register green candles across the board, Polkadot will likely keep its position in the top 10 cryptos and grow beyond.

Also read: Polkadot (DOT) and Kusama(KSM) slump after the auction-led rally—what’s next?

Bullish indicator against Ethereum

In support of a long-term bullish claim, there’s also a Relative Strength Index (RSI) divergence noticeable on the DOT/ETH chart.

In hindsight, the RSI is a momentum indicator that reflects the adequacy of the token’s price perception. When the RSI drops below 30, traders consider it oversold and buy the dip. When the RSI shoots above 70, the traders see it as a red flag and withdraw their bids. The RSI divergence occurs when the chart registers lower lows on the price action but higher lows on the RSI (purple section at the bottom of the chart).

RSI divergence could bring DOT more gains against ETH. Source: DOTETH on TradingView.com
RSI divergence could bring DOT more gains against ETH. Source: DOTETH on TradingView.com

While the price action moved down on the DOT/ETH chart, the RSI divergence is a bullish indicator, predicting an uptrend soon.

Also read: Bitcoin week ahead Ep11: Time to add Delta variant to the investment equation.

Polkadot flashed short-term bearish technicals on the daily chart, which could take the price down to $12.99, the lowest value since January. Some experts think that the DOT market won’t adopt a bullish momentum unless Bitcoin manages a breakout. Despite the current bearish outlook, the DOT/ETH exchange rate could rise if the RSI divergence indicator pans out.

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