REN price risks a 50% decline after a bearish reversal pattern occurs
The prospect of a rally to new highs for Ren (REN) appears to be fading as a classic bearish reversal pattern emerges.
It is known as the head and shoulders (H&S) and forms when the price makes three peaks, with the middle peak (called the head) being higher than the other two, described as the left and right shoulders. The underside of these tops is supported by a neckline.
An illustration of the head and shoulders pattern | Source: Corporate Finance Institute
The H&S pattern is triggered when price falls below the neckline in a correction that follows the formation of the right shoulder. This prompts traders to take a short position below the neckline, with the ideal target being a length equal to the distance between the top of the head and the neckline.
The REN case
REN has formed an upward sloping H&S pattern supported by a bullish neckline.
In particular, the REN price rebounded and hit a low point around mid-December 2021, forming a left shoulder. Then it rebounded strongly to reach a higher high – above the high of the first shoulder – and fell again.
REN has since bounced back and is currently in the process of forming a right shoulder as shown in the chart below.
Daily frame REN / USD price chart for creating a head and shoulders pattern | Source: TradingView
Hence, the REN price could continue to rise until it finishes forming the right shoulder, possibly near the 50-day exponential moving average (50-day EMA) – velvet wave near $ 0.67. It was due to the recent history of the wave that limited REN’s price rebound.
Additional selling pressure could also come from the 0.618 Fib line near $ 0.633 as it has been both support and resistance in the past. Overall, a pullback for REN seems likely to establish the right shoulder. In the meantime, a correction of the neckline followed by a break below it will confirm a head and shoulders setup.
If that prevails, REN’s downside target is $ 0.30, measured after adding the gap between the top and the neckline to the breakout point, about 50% below zero, currently $ 0.57.
Long-term outlook remains optimistic
REN’s head and shoulders pattern emerged as part of a broader price correction and was nearly 70% below its all-time high (ATH) near $ 1.92 in February 2021.
On the longer timeframe chart, REN appears to be consolidating in a huge symmetrical triangle, suggesting that a correction towards $ 0.30 could trigger a rebound to $ 1.2.
Weekly REN / USD chart showing a symmetrical triangle pattern | The source: TradingView
Bullish signals for REN could also emanate from the development of its carrier company Ren. Ren’s core product, RenVM, provides interoperability with the DeFi ecosystem. It contains users’ digital assets as they move between blockchains using Zero Knowledge Proof over an sMPC-based protocol.
REN acts as a link to run the so-called dark node that powers RenVM’s sMPC network. Senders of 100,000 REN can run these dark nodes and earn rewards in Bitcoin (BTC), Ether (ETH), Zcash (ZEC) and others.
The Total Locked Value (TVL) of the digital assets minted by RenVM on all chains – including Ethereum, Binance Smart Chain (BSC), Solana, Polygon, Fantom, Avalanche and Arbitrum – is currently $ 1.061 billion as of June In 2021 it’s only $ 6.6 million.
History of the volumes and TVL in RenVM | Source: Highcharts.com
In the meantime, the total transaction volume via RenVM across all chains has reached an ATH of 8.89 billion US dollars. This indicates a steady increase in the acceptance of the Ren network and thus strengthens the optimistic outlook for REN.
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