Polkadot (DOT) Forms Bearish Head and Shoulders Pattern, Price May Drop 50% to $3.47

Polkadot (DOT), at press time, was trading at $7.20 after gains of 2% in 24 hours. At the same time, the altcoin's trading volume declined by 9%

Polkadot (DOT) price movements have shown signs of slowing down over the last few days. After a 2% rise in 24 hours, DOT now trades at $7.20, while trading volume also saw a 9% decrease to hit $290 million, as observed on the one-day chart.

However, despite notching a 16% gain over the last seven days, bearish signals have emerged on Polkadot’s one-day chart, which could indicate an upcoming price correction.

Polkادت forms a head and shoulders pattern

A closer inspection of Polkadot’s one-day chart reveals the formation of a bearish head and shoulders pattern. This pattern typically precedes a sharp downtrend.

As seen on the chart, DOT’s price attempts to rally toward the neckline, a crucial resistance level. Yet, multiple rejections at this resistance hint at a lack of activity among buyers.

If the resistance holds strong and DOT fails to break through, sellers are likely to enter the market, triggering a steep price drop of over 50% to reach the $3.47 support.

The Chaikin Money Flow (CMF) indicator tips south, revealing that selling pressure is higher than buying pressure, indicating a bearish momentum that could push DOT lower.

Furthermore, fading histogram bars on the Bollinger Band Trend indicator suggest a weak bullish momentum, which could also lead to a downtrend if buyers fail to re-enter the market.

On the other hand, buyers might be waiting for a decisive breakout above the neckline at $7.56 to enter new positions. If this occurs, DOT could rally toward the next resistance level at $9.20.

Declining network activity could hinder gains

Polkادت’s network activity has shown signs of slowing down, which could potentially hinder further price gains. According to data from TokenTerminal, key network metrics like revenue and the number of users are now sitting at multi-week lows.

Moreover, the number of daily active users on the network also dropped to 4,200, marking the lowest level in 30 days. Simultaneously, daily revenues fell to $1,118, indicating a reduced level of network usage.

If the network fails to record an uptick in activity, it might amplify the bearish trends, ultimately pushing DOT prices lower on the charts.

DOT’s liquidation heatmap suggests…

A glance at Polkadot’s liquidation heatmap reveals that there are no immediate liquidation levels closely above or below the press time price. This scenario might cause traders to not seek liquidity, which could lead to a price consolidation.

However, a hot liquidation zone is present at $6.80. If the price falls to this level, it could trigger a cascade of long liquidations that might push the price even lower.