Using Advance Decline Index to Predict Crypto Market Trends
The Advance Decline Index (ADI) of the top 100 cryptocurrencies is a significant tool for predicting the crypto market, according to Benjamin Cowen, a renowned crypto analyst. In a recently uploaded video, Cowen explained how the tool can be used to ascertain crypto market trends.
Cowen noted users calculate ADI by adding the daily advances or declines of crypto prices to their prior index value (PIV). It is the sum of the difference between daily advances and daily declines in a group of cryptocurrencies.
Cowen also noted an increasing ADI value suggests there are more advancing cryptocurrencies in the group under review. In the same way, a decreasing value indicates more of the cryptocurrencies under review are declining.
Analysts commonly used ADI with market cap data to interpret the crypto market behavior. Cowen used historical data to explain how users can combine both metrics in predicting market trends.
According to Cowen, a situation where both the market cap and ADI of a group of cryptos are trending higher suggests an upward trend is likely to continue. A divergence in the behavior of both entities could indicate a fading momentum and suggest the potential of a reversal.
Cowen showed that the crypto market is acting as it did before the previous halving event by using past data. Data used by Cowen indicates a developing divergence between the crypto market cap’s trend and that of the ADI. When something similar happened in 2019, it prepared the crypto market for the bull run that followed the last halving.
Despite having the option to use fewer cryptocurrencies for analysis, Cowen chose to analyze the top 100. According to Cowen, his choice of using a higher number of cryptos is influenced by the accuracy level a larger data sample can provide compared to a smaller sample size.
