The cryptocurrency market was painted in red on Tuesday as Bitcoin was unable to sustain its value above $39K. The resulting altcoin correction was particularly brutal for Avalanche, which logged a 2-week low at $70. Although the price was showing signs of a relief rally, the larger downtrend was expected to continue until AVAX tagged a safer support zone.
Avalanche 4-Hour Time Frame
Before last week, Avalanche was onboard a healthy rally, logging a constant series of higher highs and higher lows. The uptrend managed to surpass a supply zone between $75-$81.5 and the daily 200-SMA (green), forming a bullish long-term narrative. However, the situation was quite different after the correction. The candles had shifted back below the 200-SMA (green) and a bottom ascending trendline now functioned as resistance.
With bears ramping up the pressure, AVAX carried the potential for an additional 26% decline before touching the next demand zone between $57-$53. The outlook was supported by an active sell signal on the MACD and a below-par daily RSI which had room for additional losses.
Trading Strategies
With multiple red flags evident on the chart, shorting AVAX made more sense than buying the current dip. At this point, it’s important to mention that a slight recovery was developing in the lesser time frame. However, with a larger downtrend dominating the market, AVAX was unlikely to close above its supply zone between $75-$81.5. The zone was home to the 4-hour 200-SMA (green) and 20-SMA (red), making an extended recovery quite tricky.
With that said, investors must wait for the next leg downwards before entering a short trade. Positions can be opened once AVAX shifts below $67.3 and take-profits can be set at $53. Stop-losses can be kept above the 38.2% Fibonacci level and above the 200-SMA (green). The hypothetical trade setup carries a risk/reward ratio of 1.17
Conclusion
The Avalanche market was ripe with shorting opportunities, and investors can take up short positions once the price closes below $67.3. The profit potential was at 21%, should AVAX follow the projected path outlined above.