- Ethereum 2.0 weekly deposits have been falling steadily to the lowest on record.
- The daily chart indicates a Rising Flag pattern
- Ethereum appears to have completed a massive top on the weekly chart
- Entry: $1,060
- Stop-Loss: $1,160
- Risk: $100
- Target: $760
- Reward: $300
- Risk-Reward Ratio: 1:3
Some analysts concluded that Ethereum's failure to close above $1.3K indicates further downside. We also consider this bearish, especially when bulls are winded as the crypto's network nears transitioning to proof-of-stake.
Ethereum's daily chart formation appears to be developing a Rising Flag—a bearish pattern. Why?
First, the congestion follows an exceptionally sharp drop in high volume. Second, volume weakened, not strengthened throughout the pattern's development. An ascending triangle happens when buyers become aggressive, but such a bullish development should have spiked volume. It did not. Finally, momentum weakened as well. The Rate of Change provided a negative divergence, as the indicator fell in contrast to the rising price.
If I am correct and this pattern is a Rising Flag, its implied target is a repeat of the preceding sharp move. Even a conservative measuring spells out a $900 drop from the $1,100 breakout point. Accordingly, if this freely traded asset follows the principles of technical analysis, it may reach as low as $200.
However, if we zoom out and see the larger picture...
We can see that ETH completed a massive top. If the pattern's classic follow-through will apply, the implied target is below $0. To clarify, I am not saying that that will happen, only that this is the implied target based on the data. Also, even if it does happen, that does not mean it will happen today or that the price can't rise first, especially if it follows its Falling Channel.
Trading Strategies
Conservative traders should wait on a short for the price to close below the June 30 low and remain below the pattern for at least three days, preferably including a weekend. Then, they'd wait for a Return Move to confirm the pattern's integrity with evidence of resistance.
Moderate traders would be content for the price to fall below the June 30 low on an intraday basis and for the Return Move to reduce exposure, if not confirmation of the trend, before risking a short position.
Aggressive traders could enter a short now, providing they can withstand potential whipsaw.
Trading Sample - Aggressive Short Position
Disclaimer: The author currently does not own any of the securities mentioned in this article.