bitcoin price is on the upswing, but after such a sharp drop and a retracement of more than 50%, any reversal should be considered a potential bull trap unless a retest of much higher prices.
Further adding credence to the theory of a potential bull trap, a trend strength indicator shows very clearly that the bears are in charge, and are ready to bring claws to bring crypto prices back into hibernation mode if necessary.
Only Up Season Is Over: Bears Now Control Bitcoin Trend
After such a strong year for the bulls in 2020 and an even more powerful start to 2021, it is not unusual to expect an “only up” in crypto. that’s why The sell-off in May was so severe – Some saw it coming.
technical warning That something violent was coming, but because sentiment was so strong the bearish signals were ignored. But technicalities are rarely wrong as long as a certain set of rules are followed.
Related Reading | Bitcoin Bulls and Bears Alike Beware of Potential Pump and Dump Fractals
for example, Average Directional Index A trend strength is a measuring instrument that usually reads with a directional movement index. Simply put, the ADX measures the trend and the DMI says which is in favor: the bulls or the bears.
Trend changes are extremely clear on the three-day chart | Source: BTCUSD on TradingView.com
In the chart above, the bears don’t have to be ruled out. still completely in control of bitcoin, despite showing a shorter time frame than the bulls. dating back to the beginning of Bear Markets, ADX and DMI provide reliable signals as to which side of the trade is most dominant.
How to Read ADX and DMI to Measure Crypto Trend Strength
The chart above also shows the DMI – falling below the ADX, which is a sign that the trend is gaining in strength. Breaking below a reading of 20 tends to reset a trend and indicate its end.
All signs suggest that Bears now have control The top cryptocurrency by market cap is unlikely to go down so smoothly for the first time since April 2020.
Could there be several bullish divergences before a reversal? | Source: BTCUSD on TradingView.com
On the lower time frame, the ADX reached a reading of 70, which shows how powerful the bears are. The strength of the trend coincides with the initial strength that pushed bitcoin above $14,000.
Related Reading | Why bitcoin could slingshot short before gaining momentum
From there and up, with each successive local high, the daily bull trend weakened until the bear finally made its attack. Each divergence in the chart above shows a trend towards weakening in action. This may also suggest that the bears may have several weak peaks before any sort of real reversal is on the table.
For now, bitcoin’s recent rally above $40,000 may be little more than a bull trap set off by fickle bears out of hibernation.
Featured image from iStockPhoto, Charts from TradingView.com