Cardano [ADA] indicates a potential bull trap: What traders need to know

Cardano [ADA] remains within a range beneath the $1 mark, with a recent breach of the crucial support level at $0.85 resulting in a significant 23% decline. The daily chart now identifies a possible area of demand around $0.65.

Despite this, encountering strong resistance beyond $1 implies that the short-term price movement is crucial. A reclaim of $0.85 could indicate a resurgence of bullish sentiment, leading to a retesting of the $0.95 resistance level.

Over the past 24 hours, Cardano has seen a 4.45% increase, benefiting from a broader market recovery as the total cryptocurrency market cap nears $3.20 trillion, marking a 1.82% rise and resulting in the liquidation of $871.64K in ADA short positions.

Nevertheless, the trading volume, which had surged to over $1 billion during the dip to $0.65, has now decreased by 24.16% to $668.4 million.

If the trading volume fails to rebound, the current uptrend in price could be attributed to a short squeeze rather than genuine underlying demand.

Could Cardano Experience a More Significant Retracement?

The narrow trading range of Cardano between $0.65 and $0.85 has spurred speculation about an imminent breakout.

A bullish crossover on the MACD and an oversold condition on the RSI indicate a growing upward momentum, further reinforced by the broader market recovery.

Nevertheless, the influx of smart money, which peaked in mid-January during ADA’s rally to $1.15, has dwindled, closely mirroring its subsequent 43% decline.

In the derivatives market, the Open Interest has seen a 2.16% increase, suggesting that traders are positioning themselves for a 4% surge in ADA’s price within the day.

However, given the weak fundamental foundation, this price movement might be more related to liquidity than a genuine reversal in trend. The escalating speculative exposure combined with minimal actual buying interest raises the risk of a substantial long squeeze.

With over $100 million in leveraged positions at risk of liquidation, the present levels of Cardano may not offer a compelling opportunity for “buying the dip.”

A potential retracement to the support level of $0.65 remains a possibility. Failing to hold this level could trigger further downside momentum, potentially extending the ongoing correction. Stay vigilant!