The Bitcoin (BTC) bull move could soon run wild, bringing a steep multi-week uptrend in the leading cryptocurrency.
That's the message from bitcoin's 14-week relative strength index (RSI), a momentum indicator used to measure the speed and change of price movements.
The indicator has crossed above 70, a threshold that marked the FOMO (fear of missing out) phases of the mid-2019 and late 2020 bull runs. These FOMO phases are characterized by both retail and savvy traders pouring money into an already-trending asset in fear of missing out on a significant opportunity.
Developed by J. Welles Wilder, the RSI measures the speed and change of price movements and oscillates between zero and 100. The default period for calculating RSI is 14 days, but traders use 14-week and 14-month RSIs to gauge long-term momentum.
A reading above 70 is often erroneously taken to represent overbought conditions and a sign of an impending bearish reversal. However, per technical analysis textbooks, an above-70 RSI, especially on longer duration charts, suggests bullish momentum is strong and the asset could continue to rally in the weeks ahead, similar to what happened in 2019 and 2020.
To paraphrase a Wall Street saying, indicators can stay overbought longer than bears can stay solvent.
Traders, however, should note that macro developments can single-handedly make or break technical chart patterns and should be vigilant of potential black swans.
Source : CoinDesk by Omkar Godbole / November 01, 2023