Yesterday, Litecoin (LTC) broke above its falling wedge pattern, signaling a notable increase in buying pressure. The altcoin had been trading within this pattern since March 31, indicating a prolonged period of downward movement. Despite this bullish breakout, recent data suggests that many traders who sold their holdings during the rally have faced significant losses.
Understanding the Falling Wedge Pattern
A falling wedge pattern is characterized by two downward-sloping trend lines converging over time. The upper trend line acts as resistance, while the lower trend line serves as support. When an asset’s price breaks above the upper trend line, it often signals a potential upward trend, indicating that buyers are overpowering sellers.
Since entering the falling wedge on March 31, Litecoin’s price had decreased by 27%. As of now, LTC is trading at $71.74.
Losses Amidst the Rally
Despite the bullish signal from the falling wedge breakout, on-chain data reveals a different story for many traders. According to the Network Realized Profit/Loss (NPL) metric, numerous traders incurred substantial losses. Yesterday, the NPL metric dipped to -5.25 million, indicating that many holders sold at a loss during the rally.
The NPL metric tracks the net profit or loss of an asset’s network holders. A negative reading, like the one observed, suggests a bearish sentiment as it shows that, on average, holders are realizing losses. This pattern often indicates panic selling and capitulation among traders.
Concerns Over Sustainability
Further analysis raises concerns about the sustainability of Litecoin recent price uptick. The Price-Daily Active Address (DAA) Divergence metric, which compares an asset’s price movements with changes in its daily active addresses, suggests that the recent price increase may not be supported by corresponding network activity.
At the time of writing, LTC’s Price DAA Divergence is at -36.78. This negative value indicates that the price is rising faster than the number of active addresses, suggesting that the recent surge may be driven more by speculation and short-term buying rather than increased adoption or long-term investment interest.
Future Outlook
If this speculative trend continues, LTC’s price could face a potential decline. Analysts predict that the value might drop to $70, aligning with the 0.236 Fibonacci retracement level, if the buying pressure does not translate into sustained network activity.
Conclusion
While Litecoin’s break above the falling wedge pattern marks a bullish milestone, the subsequent losses faced by many traders and the concerning Price-DAA Divergence metric suggest that caution is warranted. As the market watches for further developments, the sustainability of LTC’s price rally remains uncertain.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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