This key trading pattern hints at the continuation of Fantom’s (FTM) 125% rebound

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Fantom (FTM) looks set to hit a new all-time high in the next few sessions after its price rebound of 125% from $ 1.23 on December 14, 2021 to $ 2.84 on January 3, 2022, has triggered a classic bullish reversal pattern.

Called inverted head and shoulders (IH&S), the pattern appears when an asset forms three troughs below a so-called neckline resistance, with the middle trough (the head) deeper than the left and right shoulder.

The price of the FTM has recently undergone a similar price trajectory, as shown in the chart below. As a result, FTM has a common resistance in the range defined as $ 2.55 to $ 2.74, which encompasses the length of the inverted head and shoulder pattern.

FTM / USD daily price chart with inverted head and shoulders pattern. Source: TradingView

Could Fantom rally an additional 50%?

In a perfect world, an IH&S setup would normally result in a bullish breakout once the price closes decisively above the neckline level. Ideally, the target on the rise should be equal to the maximum distance between the head and the neckline, measured from the point of rupture.

On Monday, FTM nearly completed their IH&S training by reaching their neckline. As a result, the next move for the Fantom token could be a bullish breakout above the resistance range of $ 2.55 to $ 2.74. In doing so, it would be chasing a run towards $ 4.33, based on the setup shown in the table below.

FTM / USD daily price chart showing the IH&S breakout pattern. Source: TradingView

A sharp drop in the prices of the neckline range, accompanied by a peak in volume, would risk invalidating the IH&S configuration. In this case, the next ideal support line could approach $ 2.08. This would be based on the visible range of the FTM Volume Profile (VPVR), a metric that displays trading activity over a specified time period at specified price levels.

FTM / USD daily price chart with volume profile target. Source: TradingView

Are there any risks of overestimation?

Downside risks in the Fantom market have also appeared in the form of its Relative Strength Index (RSI), a measure that measures the magnitude of recent changes in the asset’s price to assess its overbought or oversold conditions. .

Relative strength index in a nutshell. Source: Investopedia

In detail, FTM’s daily RSI entered overbought territory on January 3 as its reading slightly exceeded 70. The technical indicator suggests that FTM is overbought and should undergo some degree of correction to neutralize market sentiment.

Simply put, an RSI reading above 70 is generally considered a sell signal. However, massive sell-offs usually don’t necessarily come right after the RSI has jumped into the overbought zone.

Related: 5 Cryptocurrency Projects That Made Waves In 2021

Based on several RSI corrections spotted between August and September 2021, the FTM price appears to be extending its bullish momentum even after the indicator broke through 70. At its best, the daily RSI hit near 89 on September 9, coinciding with the FTM price. hitting the record high of $ 1.99 at the time.

FTM / USD Daily Price Chart with RSI Based Corrections. Source: TradingView

This leaves FTM somewhat with an opportunity to pursue its IH&S profit target of $ 4.33 despite its risks of overvaluation. What could follow is a correction towards its 20-day exponential moving average (20-day EMA; the green wave in the chart above) around $ 2.09.

This would bring the price of VPVR support closer to $ 2.08 as shown above.

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.