Assessing ADA’s Possibility of Returning to $1.7 After Recent Flash Crash

ADA price is forming a bottom reversal pattern that could pull it out of a multi-month downtrend and trigger a rally. However, the bulls have their own hurdles to overcome to get such a bullish outcome.

ADA Price Towards the Future

The ADA price action since Jan. 21 appears to be forming an inverse head and shoulders pattern. This technical pattern has 3 distinct bottoms. The middle bottom is usually deeper than the other two and forms the “head”. The slightly lower bottoms on either side are roughly the same height, creating the “shoulders”. Hence this pattern is called “head and shoulders”.

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Connecting the tops of these lows with a trendline reveals a resistance barrier known as the “neckline” at $1.26.

Investors should note that a decisive close above $1.26 will signal a breakout. However, the aforementioned pattern is not complete unless ADA retests the neckline. Therefore, a trend reversal can eliminate the possibility of a price increase.

Regardless, if ADA continues to move higher, a head and shoulders pattern will be confirmed. A daily candle close above $1.26 will confirm a breakout. In such a case, the $1.70 target is determined by measuring the 36% distance between the head low to the neckline and adding it to the breakout point.

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However, the path to the upside will not be easy as ADA faces multiple hurdles around the 2022 volume control point at $1.05. The checkpoint is where ADA volume is most traded in 2022. Breaking this level will be the first test of the bulls’ strength. Clearing the $1.05 ceiling allowed ADA to break through the $1.22 to $1.35 barrier and hit the $1.70 forecast target, bringing the total gain to 83%.

ADA 1

ADA/USDT 1 day | Source: Tradingview

Supporting the upside is a 365-day Market Value to Real Value (MVRV) model. This on-chain metric is used to determine the average profit/loss of investors who purchased ADA over the past year.

Values ​​below -10% indicate that short-term holders are losing money and are less likely to sell. This is where long-term holders tend to accumulate. Therefore, any move below -10% is called an “opportunity zone”.

For ADA, the 365-day MVRV has been in the negative zone since December 1, 2021, indicating severe oversold conditions. Therefore, investors can expect long-term holders to accumulate.

In such a case, an inverse head and shoulders pattern could trigger a major upward move.

ADA 2

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ADA 365-day MVRV | Source: Santiment

On the other hand, a headwind pushing the price of ADA to reverse the trend would put potential gains at risk. A daily candle closing below $0.85 will invalidate the bullish thesis by creating a lower low.

In such a case, ADA could drop to $0.77 before stabilizing and rethinking direction.

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