Bitcoin price is still stuck well below $35,000 but any attempt to push prices below $30,000 are bought up in minutes. Eventually, one side will have to break, and according to a trend indicator, it could be in favor of bulls.
The tool, which measures the strength of a trend, suggests that the more dominant high timeframe bull trend isn’t anywhere close to finished, and it could lead to enormous upside if history repeats.
Technical Analysis 101: How To Read The Average Directional Index
The Average Directional Index isn’t as popular as some of the other tools created by J. Welles Wilder Jr. such as the Relative Strength Index, or Parabolic SAR – two indicators widely covered here recently.
Each tool has a unique use, and the ADX is designed to measure the strength of a trending asset – for example, Bitcoin. The ADX is commonly featured with a Directional Movement Index included, made up of a DI+ and DI- indicator.
Related Reading | Bull Signal From Bitcoin Bottom Is Best Hope Yet For Continuation
The negative directional indicator and positive directional indicator tell analysts which side of the market controls the momentum – bears or bulls. Essentially, if the green line is above the red, bulls are in charge and vice versa.
Reading the ADX itself is a bit different. The higher the reading, the stronger the trend is. A fall to below a reading of 20 indicates that there’s a distinct lack of a trend, or in other words – the trend has ended. Armed with this knowledge, here’s how it all applies to what’s going on with Bitcoin currently.
The weekly bull trend isn't over yet according to the ADX | Source: BTCUSD on TradingView.com
What The ADX Says About The Bitcoin Bull Trend
The chart above suggests that the weekly bull trend has never ended, even if bears have gained the upper hand for now. With the greater bull trend in tact, bulls still have a chance to prevent it from ending completely just yet. Past instances of the bull trend ending were more obvious and resulted in significant bearish downside.
The leading cryptocurrency by market cap has already experienced a sharp selloff, but the selling has stopped at $30,000 for several weeks now.
The daily bear trend might need to conclude before more upside | Source: BTCUSD on TradingView.com
Switching to lower timeframes, the chart above shows that the short-term bear trend hasn’t finished yet, and the crypto market could spend another couple months trying to put in a bottom (green box). Note specifically how the previous top took several months to form (red box).
Related Reading | Building The Case For A Potential Bitcoin False Bottom
The ADX falling below 20 clearly marked the end of the short-term bull impulse, and a fall below 20 might be necessary for the bear trend to have concluded.
On monthly timeframes, the secular bull run has never ended | Source: BTCUSD on TradingView.com
Zooming out even further should give even the most shaken bulls more confidence. On monthly timeframes, bears never have even had a chance with the top cryptocurrency.
The ADX says the strength of the trend hasn’t reached anywhere near the high point of the 2017 bull market, and might only be starting with the next recovery. From the low put in following the white box in 2016 resulted in another 3900% in continuation.
Could that be what’s next for crypto?
Featured image from iStockPhoto, Charts from TradingView.com