Polkadot’s price is ideal for short trading after slipping below a major support zone. The next area of contact lay at $12, another 15% drop from DOT’s press time level. The trade setup would face dangers from an oversold RSI, although a tight take-profit would be able to mitigate potential losses. DOT traded at $14.2, down by 15% over the last 24 hours at the time of writing.
Polkadot Daily Time Frame
Polkadot’s price was exposed to an extended sell-off for two major reasons. Firstly, its price had slipped below a major support zone of $17.3-$15.2, and the next viable defense lay only around $13. Secondly, the price had breached a support trendline that was active since January 2021.
Despite near-term supports available at $13 and $12.5, the Visible Range Profile showed a lack of interest for Polkadot between $14 and $12, meaning that chances of an immediate rebound were slim. Instead, the daily demand zone of $12-$10.4 was a more logical defense for Polkadot heading forward.
Trading Strategy
Shorting Polkadot at its press time level was an attractive option due to weak near-term supports available on the chart. The Directional Movement Index was diverging – a sign that bearish force was gathering pace over the past few sessions Furthermore, an Average Directional Index reading of 26 meant that volatility was increasing as well. The ADX is a measure of a trend’s strength in the market. Whenever the ADX climbs above 25, it signifies that the bearish or bullish force is becoming stronger. The same leads to higher market volatility and in this case, the potential for greater losses.
Investors can take up short positions at $14 and exit their trades once DOT hits the upper limit of its demand zone at $12. However, it’s important to note that the RSI was zeroing in on the oversold territory and there were slight chances of a bullish rebound. Hence, stop-losses must be tight. The same can be maintained at $15.6, slightly above the DOT’s overhead resistance. The trade setup carried a 1.25 risk/reward ratio.
Conclusion
Those trading Polkadot can look at the short setup above to profit from its projected decline. A great degree of FUD was still persistent in the broader market and chances of an extended correction were high. Shaky supports between $14 and $12 dampened hopes of a bullish reversal as well.