A Golden Opportunity For Ethereum? 600% Buy Signal Returns

Ethereum has formed a “golden cross” pattern on the 1-week timeframe, marking the second such signal this year. While the long-term implications could be very positive if history repeats itself, there are reasons to temper expectations.

1W ETHUSD has formed a golden cross for the second time in 2023. A golden cross is a buy signal in moving average-based trading systems. It suggests that the trend is moving in an upward direction and because trends tend to persist, this is notable.

The golden signal occurs when a shorter-term moving average (the 50-week MA) crosses through a longer-term moving average (the 200-week MA) from below. A death cross forms when the opposite happens.

The last confirmed golden cross for Ethereum in December 2020 preceded a massive 600% rally over the next year to the asset’s all-time high near $4,900. A repeat move of similar magnitude this time would put Ethereum above $12,000—over six times today’s price of around $2,000.

However, it is important to note that not all golden crosses lead to the anticipated upside. In 2023 alone, 1W ETHUSD has death crossed and golden crossed twice now, demonstrating how moving average-based systems are prone to whipsaw without an established trend to follow.

The whipsawing death cross and golden cross price action on the Ethereum 1-week chart failed to generate follow-through in either direction. So how can we be sure that this isn’t yet another premature crossover?

This is where the Average Directional Index (ADX) comes in when gauging the validity of moving average crosses. The ADX aims to measure trend strength, typically on a scale of 0 to 100.

As the 1-week ADX edges up from below 20, it confirms growing momentum that reduces the odds of more whipsawing price action. Traders often use such ADX readings to confirm golden/death crosses and enter only the most high-conviction signals.

The 1W ETHUSD Average Directional Index isn’t yet above 20, but is approaching this key level. Above it, it gives the golden cross much more validity.