Watchlist: Short-term Top Ahead on ADA/USD?

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After a face ripping rally in August, ADA/USD is back to trading far above its 200-day moving average. Is this the short-term top before an new move higher? Or will the bears take back control from here?

Short-term Top Ahead on ADA/USD?

ADA/USD Daily Crypto Chart
ADA/USD Daily Crypto Chart

A couple of weeks ago, we argued that the odds favored a potentially bullish move for ADA/USD after the pair broke above resistance at 1.5000, and on fundies as the Cardano Project was set to announce the release date of smart contracts. Fortunately for Cardano bulls, that price scenario played out, and in a big way, as ADA/USD took off like a rocket to nearly hit 2.9700 in yesterday’s session–a 98% rally from the 1.5000 broken resistance price.

Using the Bollinger Band indicator, we can now see the market is now trading more than three standard deviations (3SD) from the 200-day moving average, indicating extreme technical bullishness. This is a scenario where prices have arguably reached an attractive level for traders to take profits or fade a move with a fresh reversal position.

In May, we saw the 3SD Bollinger Band tested right before the 57% correct during the broad crypto selloff, so there is some precedents that this could draw in sellers.  But also keep in mind that ADA/USD traded above the 3SD level in early 2021 for three months so it’s not a guarantee that prices will reverse.

Overall, fundamentally we think Cardano will continue to attract capital as it becomes a serious contender to the Ethereum network and the world’s third largest crypto asset.  But profit taking and short-term countertrend trades may hit ADA/USD soon, so if you got in when the market broke above the 1.5000 handle, now may be a good time to consider taking some profits off the table and/or raising stops as well. This is one of those scenarios where you can create an essentially “risk-free” trade based on how you manage your position and exit orders.

And if the market does reverse back to the downside, we’ll be on the lookout for potential support patterns around the previous short-term consolidation pattern last week between 1.9000 – 2.2000 to play our fundamentally long bias. We’ll also be on the lookout for a potential “buy-the-rumor, sell-the-news” reaction from the market in September, where the market could dip very quickly on more profit taking.

What do you guys think? Is Cardano a sell from here? Or will ADA/USD we see another tight consolidation just under $3.00 before a fresh breakout higher? 

Let me know in the comments below or visit a forum discussion on ADA, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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