The Polkadot price is ideal for short trading after falling below a major support zone. The next contact area was at $12, another 15% drop from the DOT time-to-print level. The trade setup would face dangers of an oversold RSI, although a tight take-profit would be able to mitigate potential losses. The DOT traded at $14.2, down 15% over the last 24 hours at the time of writing.

daily polkadot period

Source: TradingView

Polkadot’s price was exposed to a prolonged sell-off for two main reasons. Firstly, its price dropped below a major support zone of $17.3 to $15.2, and the next viable defense was just $13. Second, the price violated a trendline support that has been active since January 2021.

Despite available short-term supports at $13 and $12.5, the Visible Range Profile showed a lack of interest for Polkadot between $14 and $12, meaning the chances of an immediate recovery were slim. Instead, the $12-$10.4 daily demand zone was a more logical defense for Polkadot to move forward.

trading strategy

Source: TradingView

Shorting Polkadot at its publication level was an attractive option given the weak short-term supports available on the chart. The Directional Movement Index was diverging – a sign that bearish strength was picking up pace in recent sessions. Additionally, an Average Directional Index reading of 26 meant that volatility was also increasing. The ADX is a measure of the strength of a trend in the market. Whenever ADX rises above 25, it means that bearish or bullish strength is becoming stronger. The same leads to greater market volatility and, in this case, the potential for greater losses.

Investors can go short at $14 and exit their trades as soon as the DOT reaches the upper boundary of its demand zone at $12. However, it is important to note that the RSI was focusing on the oversold territory and there were small chances of a bullish recovery. Therefore, stop-loss must be tight. The same can be held at $15.6, just above the DOT overhead resistance. The trade setup carried a risk/reward ratio of 1.25.

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Polkadot traders can look to the short setup above to cash in on its projected decline. A large degree of FUD was still lingering in the broader market and the chances of an extended correction were high. Shaky supports between $14 and $12 hopes for a bullish reversal as well.

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