bitcoin price is above $45,000 for the first time since April 2022 and based on the weekly average directional index, the rally may not stop anytime soon. This is because the trend strength measurement tool is starting to show striking similarities to the 2021 bull run.
Deja Vu of the bitcoin Bull Run: 2021 versus 2024
When bitcoin is trending, it is wise to get out of the way. The same is true regardless of whether or not BTCUSD is in an uptrend or downtrend. Currently, the top cryptocurrency by market capitalization is in an uptrend, according to the Average Directional Index.
The tool is designed to measure the strength of a trend over any time period. When the ADX grows and exceeds 20, it suggests that there is an active trend at play. Below 20, there is not enough evidence of a trend, which could suggest sideways price action.
The weekly ADX in bitcoin is not only above 20, but it is also above 51. Reaching above 51 at the end of 2020, resulted in a 120% increase over four weeks. If a move of the same magnitude occurs, BTCUSD could reach $94,000 per coin by mid-February.
All about the average directional index
The Average Directional Index is a trend strength measurement tool designed by J. Welles Wilder, Jr., creator of other technical analysis tools such as
The ADX reading in dark blue above shows the strength of a trend. The ADX, however, comes equipped with two directional indicators, DI+ and DI-. Not only is the ADX in the exact location of the late 2020/early 2021 bull run, but the DI+ in green and DI- in red are also at the same level.
This could indicate the same conditions conducive to a parabolic rally. In 2021, bitcoin peaked when the ADX hit 85 and started falling again. If BTCUSD breaks this level, we could be looking at an even stronger rally than expected.
If it fails to break above 85 but establishes a new all-time high, a bearish divergence could warn of an impending top in cryptocurrencies. Whatever the case, the ADX could be an important tool for understanding cryptocurrency trends.
Disclaimer: The article is provided for educational purposes only. It does not represent NewsBTC's views on whether to buy, sell or hold investments, and investing naturally carries risks. It is recommended that you conduct your own research before making any investment decisions. Use the information provided on this website at your own risk.
