Up until this past week, bulls have been in charge of Bitcoin price action, maintaining a series of higher high and higher lows.
While that uptrend structure isn’t yet broken, a tool that reveals the underlying strength of a trend points to bears having the upper hand for the first time in 2023.
Sideways Bitcoin Breaks Down Leaving Bulls Vulnerable
A recent distinct lack of volatility and prolonged sideways trading range suggested that a big move in BTCUSD was on the way. The outcome ultimately saw bears swatting down Bitcoin price by 10% in a single day. The breakdown immediately put the 2023 uptrend in jeopardy.
An uptrend is defined as a series of higher lows and higher highs, which is still structurally intact in BTCUSD charts. But there is often more to a trend than structure alone. It also matters the strength of a trend, and if bulls or bears have the upper hand.
This is precisely why the Average Directional Index was created by J. Welles Wilder, Jr. The tool can measure the strength of a trend, and based on that determine if there is a worthwhile trend to trade.
Its calculation is based on two internal indicators, DI- and DI+, which make up the Directional Movement Index. Essentially, the ADX signals when the trend has a direction, and the positioning of the two directional indicators helps determine what that direction is.
Weekly DI- has moved above DI+ for the first time in 2023 | BTCUSD on TradingView.com
Bears Get Revenge, Regain Control For First Time In 2023
If red is above green, like we have currently in Bitcoin for the first time in all of 2023 it means that bears are in control over the trend direction. Importantly, the ADX is falling but still above 20.
A reading above 20 is necessary for confirming the existence of a trend. If bulls can take back control while above 20, or if bears have control while the ADX falls below the level, this could be a false alarm.
But if the ADX starts rising and red is above green, another wave of bearish price action could follow. Even worse, bears dominating weekly timeframes could tip the favors back into the clutches of bears on the monthly BTCUSD chart also. This scenario would be the unprecedented in the history of Bitcoin.
This chart originally appeared in “Issue #17: Bounce or Back to a Bearish Trend” of CoinChartist VIP. Subscribe for free.
