DOT traders wishing to initiate long positions should be cautious. Here’s why:

• DOT recovered from its decline on December 19 and surged to $8.45.
• The token’s momentum may increase upwards, but it may fall towards $7.50.
• DMI suggests DOT could rise another 20%, reaching $10.

Polkadot (DOT) price surpassed $8 on December 21, thanks to a 7.02% increase over the past 24 hours. This increase was a moment of relief for DOT holders who had suffered a downward trend from December 13th to 19th.

During that period, selling pressure caused the Polkadot native token to fall from $7.63 to $6.52. However, the $6.52 area quickly turned into support and played a decisive role in pushing DOT to $8.45.

DOT is not stopping yet

From a technical perspective, it is unlikely that DOT will stop its upward trend at $7 or $8. This was due to the Awesome Oscillator (AO) condition shown on the 4-hour DOT/USD chart.

At press time, AO was 1.02. As the green bar increases, the indicator indicates that DOT is experiencing increasing upward momentum. Although DOT fell slightly to $7.92, there was a possibility that it would rise back to the $8 region.

The reason for this claim can be found in the Directional Movement Index (DMI). At the time of this writing, +DMI (green) was 37.94 and -DMI (red) was 16.25. Differences in these indicators mean that buyers are in control of DOT price action.

Another indicator supporting this position was the Average Directional Index (ADX). At press time, ADX (yellow) was 30.15. Typically, ADX numbers below 25 indicate weak directional movement.

However, since ADX exceeded 25 here, it means that DOT’s directional movement was strong. If this remains the same, DOT could increase by another 20% to the $10 level.

Bulls need to play their cards right

Moreover, the potential rise to $10 is likely not linear. Therefore, traders should expect some decline towards the $7.50 region to be possible. If DOT reaches this price and profit-taking is not widespread, it could be a good entry point for a long position.

Coin Edition looked at DOT’s funding ratio to assess whether traders are bullish or bearish on price action. According to Coinglass, a derivatives information portal, Polkadot’s weighted funding ratio showed a positive figure as of press time.

The funding rate is the amount that a long or short trader pays on the other side of the split. This is done to maintain the position. When the funding ratio is negative, shorts are buying and the overall sentiment is bearish.

Therefore, DOT’s funding rate of 0.039% means that most traders are optimistic about the price action. In the meantime, DOT’s performance could remain profitable for a long time. However, traders should avoid using wide leverage margins as the tokens may reverse at some point.