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In the Polkadot market, the inverted head and shoulders pattern suggests a decisive breakout move.
Polkadot (DOT) chart technicals indicate that it could rally to a new record high near $75 if it can decisively close above its $41–$43 range.
This is according to a classic bullish reversal setup known as an inverse head and shoulders (H&S), which forms when the price experiences three selloffs during a market consolidation period.
Specifically, the pattern contains an initial selloff, followed by a short-term price rally and another — deeper — selloff. That leads to one more small correction to the upside, followed by another selloff that bottoms out near/at the lowest level of the first selloff.
The first and last selloffs correspond to the “left” and “right” shoulders, respectively, and the second selloff corresponds to the “head.” The level around which all of the short-lived rallies top out, on the other hand, represents the “neckline” of the head and shoulders pattern.
Traditional analysts calculate the H&S upside target by measuring the maximum distance between the neckline resistance and the head formation.
Polkadot appears to be forming a similar bullish pattern on its weekly chart, as shown below.
The maximum distance between DOT’s neckline and the head’s bottom comes out to be nearly $31. Therefore, a successful bullish breakout above the neckline range of $41–$43 puts the next long-term target at approximately $75.
Parachain auctions coming in November
The inverse H&S pattern emerged as DOT surged nearly 30% this week to a five-month high of around $44. A price surge across the crypto market, as well as news of Polkadot’s first parachain auctions going live on Nov. 11, were at the heart of its weekly uptrend.
Polkadot’s parachains are parallelized, application-specific chains — child ledgers linked to a single parent ledger known as the Relay Chain. Parachains, due to their parallel nature, tend to process multiple transactions at the same time while also maintaining and recording their data on the main ledger by communicating with other chains.
That comes as a break from the method of queuing transactions and processing them sequentially.
DOT, which serves as a utility token for fees, governance, interoperability and bonding inside the Polkadot ecosystem, rallied by more than 24% after the parachain auction announcement.
Next, Polkadot aims to introduce a cross-chain feature that will enable its Relay Chain to external blockchains (Bitcoin, Ethereum, etc.) via specialized smart contracts. Meanwhile, the project also plans to launch “in-built bridging modules” that will enhance the interoperability of external blockchains with Polkadot.