REN price at risk of 50% drop after a bearish trading pattern shows up

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The outlook for Ren (REN) to continue its continued rebound to new highs looks slim as a classic bearish reversal pattern begins to emerge.

Called head and shoulders, the pattern appears when the price forms three peaks, with the middle peak (called the head) being longer than the other two peaks described as the left and right shoulders. The bottoms of these peaks are supported by a neckline.

An illustration of the head and shoulders pattern. Source: Institute of Corporate Finance

The pattern comes into play mainly when the price crosses below the neck line during a correction that follows the formation of the right shoulder. This prompts traders to open short entries below the neck line, with their ideal target at a length equal to the distance between the highest point of the head and the neck line.

What is behind REN’s current configuration?

REN formed what appears to be an upward sloping head and shoulders, supported by a high neckline.

In detail, the REN price rose and fell to a low around mid-December 2021, forming the left shoulder. Later it rebounded strongly to create a higher peak – above the highest level of the first shoulder – and then fell back again.

REN has since rebounded again and is now forming his right shoulder, as shown in the graph below.

REN / USD daily price table with H&S configuration. Source: TradingView

As a result, the REN price may continue to rebound until it completes its right shoulder formation, which could be near the 50 day exponential moving average; the velvet wave, nearly $ 0.67. This is because of the recent history of REN’s price rebound limiting wave.

Further selling pressure could also come from the 0.618 Fib line near $ 0.633 due to its historical relevance as support and resistance. Overall, a pullback seems likely to happen and REN would make the right shoulder. Meanwhile, a correction towards the neckline, followed by a break below, would confirm the configuration of the head and shoulders.

In doing so, the movement may move the target downward from REN to $ 0.30, measured after adding the distance from the top of the head to the neck line at the break point. That’s about 50% below the current trading price at $ 0.59.

The long-term outlook is still bullish

REN’s head and shoulders setup is part of a larger price correction that saw the token lose nearly 70% of its value from a record high of nearly $ 1.92 in February 2021.

On a longer-term chart, REN appears to have consolidated only inside a giant symmetrical triangle, suggesting that its correction towards $ 0.30 could end up causing a rebound towards $ 1.20.

REN / USD weekly price chart with a symmetrical triangle. Source: TradingView

Bullish clues for REN may also come from the growth of its funder of the same name. Ren’s core product, RenVM, brings interoperability to the Decentralized Financial Ecosystem (DeFi). It holds users’ digital assets as they move between blockchains using zero-knowledge evidence over an sMPC-based protocol.

Related: 3 Reasons The REN Price Raised 340% From Its July Low

REN acts as a link to run the so-called Darknodes that power RenVM’s sMPC network. Those who deposit 100,000 REN can run these Darknodes and, as a result, can earn rewards in Bitcoin (BTC), Ether (ETH), Zcash (ZEC), and other tokens.

The total locked-in value (TVL) of digital assets minted across all chains – which includes Ethereum, Binance Smart Chain, Solana, Polygon, Fantom, Avalanche, and Arbitrum – by RenVM stood at $ 1.05 billion at the time of the listing. going to press, for $ 6.6 million. in June 2021.

Multi-year history of volume and total value locked in RenVM. Source: Highcharts.com

Meanwhile, the total volume of transactions through RenVM on all channels reached a record high of $ 8.89 billion on January 4, 2022. This shows a steady increase in the adoption of the Ren network, thus increasing the prospects for REN token increase.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.