Bitcoin price is flirting again with resistance above $ 10,000, but has yet to penetrate and remain above key levels. This last visit has led to a lower high.
If the cryptocurrency does not get through and sets a new local peak, the asset is at risk of setting a new lower low. This could also expose the asset to the risk of reaching a new bear market bottom, even if market sentiment suggests so.
The mood says the bull market is here, but has Bitcoin really hit rock bottom?
All markets are cyclical and go through periods of prosperity and exuberance, which are brought back to reality through decline and destruction.
It's been almost four full years since Bitcoin peaked at $ 20,000. The bursting crypto bubble is now a distant but painful memory. However, the asset class is still promising and potential, and positive growth is only a few days away at this point.
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Chartered market technicians claim that technical data indicates a new upward trend in an asset that has been primarily bullish throughout its existence. An outbreak at first glance seems clear as a day.
Technical analysts use tools and indicators to help them understand where assets are in such a cycle. Such a tool to measure the strength of a trend could indicate that Bitcoin has not yet bottomed out.
And if the asset has not yet bottomed out, when could this happen and how low could prices fall?
Average directional index on BTCUSD gives ominous bear signal
It seems impossible to believe, but indicators provide data without bias. The Average Directional Index is one of these tools developed by J. Welles Wilder to measure trend strength.
Wilder also developed other popular technical analysis tools such as the Relative Strength Index and the Parabolic SAR.
The ADX also consists of two directional motion indicators. When the two indicators cross, it signals whether the trend is bearish or bullish. The ADX itself then measures how strong a trend is.
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Readings above 20 indicate that a trend is gaining strength. The higher the number, the stronger the trend. High readings could indicate that a trend is reversing. If the readings are extremely low, there is almost no trend.
In monthly periods in BTCUSD charts, the ADX gives a potentially scary signal. According to the tool, Bitcoin may not have hit rock bottom yet.
BTCUSD Average Directional Index Monthly | Source: TradingView
Compared to the previous bear-bull cycle, the ADX has not yet fallen below 20, which indicates that the previous trend has not yet ended completely. To give the theory more credibility, the two directional indicators have to cross bearishly during this downward trend.
While this might simply suggest that Bitcoin is simply too bullish for the indicators to be bearish, comparisons with the past show otherwise.
BTCUSD Average Directional Index 5-Day | Source: TradingView
The 5-day chart of the ADX shows that the trend is currently the lowest strength ever recorded in the cryptocurrency.
In this case, a short-term trend direction could soon be chosen. If the direction is wrong on the 5-day day, the ominous monthly BTCUSD signal can be confirmed. If the trend is up, Bitcoin may never become bearish on the ADX and the trend may gain strength from here.