The chances that the Ren (REN) will continue to climb to new highs look slim when the classic bearish reversal pattern begins to emerge.
A duplicated head and shoulders design occurs when price has three peaks, with the middle top (called the head) longer than the other two peaks, described as the right and left shoulder. The hem of these tops is supported by a neckline.
Illustration of a head and shoulder model. Source: Institute of Corporate Finance.
The pattern’s effect begins primarily when price breaks the neckline in a correction following the formation of the right shoulder. Traders are asked to open short entries below the neck, and their ideal size should be the same length as the distance between the crown of the head and the neck.
What’s behind the current REN setting?
The REN has formed what appears to be an upwardly tilted pattern of the head and shoulders supported by a high neck.
Specifically, the REN price rallied and fell around mid-December 2021, forming a left shoulder. It later rebounded sharply again to create a higher top – above the first high of the shoulder – and then fell again.
Since then, REN has picked up steam again and is now in the process of forming its right shoulder as shown in the chart below.
Daily REN / USD price chart with H&S setting. Source: TradingView
As a result, the REN price may continue to decline until it completes the formation of the right shoulder, which may be close to the 50-day exponential moving average; Velvet wave close to $ 0.67. This is due to the recent history of the wave limiting REN price reversals.
Additional selling pressure could also come from the 0.618 Fibonacci line around $ 0.633 due to its historical importance as support and resistance. Overall, it looks like a pullback will occur that will cause REN to take up the right shoulder. Meanwhile, a neck correction followed by a pause underneath will emphasize the location of the head and shoulders.
Thus, the move could push the REN downside target to $ 0.30, measured after adding the head-to-neck distance to the breakout point. This is about 50% below the current trading price of $ 0.59.
Long-term outlook remains positive
The REN head and shoulders setup is part of a broader price correction that saw the coin shed almost 70% of its value from a record high of around $ 1.92 in February 2021.
On the longer timeframe chart, it appears that REN has only consolidated within the giant symmetrical triangle, indicating that a correction to $ 0.30 could eventually trigger a pullback to $ 1.20.
Weekly rin / usd price chart with symmetrical triangle. Source: TradingView
Bullish signals for the REN could also come from the rise of the eponymous supporter. Ren’s flagship product, RenVM, provides interoperability for the Decentralized Financial Ecosystem (DeFi). It stores users’ digital assets as they move between blockchains using empty directories via an sMPC based protocol.
RELATED: 3 Reasons REN Price Is Up 340% Over Low Volatility In July
REN acts as a push link for the so called Darknodes that power the RenVM sMPC network. Those who deposit 100,000 REN can play these Darknodes and receive rewards in Bitcoin (BTC), Ether (ETH), Zcash (ZEC) and other tokens as a result.
The total digital asset value (TVL) for digital assets including Ethereum, Binance Smart Chain, Solana, Polygon, Fantom, Avalanche and Arbitrum for RenVM is $ 1.05B at time of publication, up from $ 6.6M in June 2021 year.
Long history with unlocked volume and total cost in RenVM. Source: Highcharts.com
Meanwhile, the total volume of transactions via RenVM across all chains hit an all-time high of $ 8.89 billion on January 4, 2022. This indicates a steady increase in the adoption of the Ren network, which increases the optimistic outlook for the REN token.