There is a concept in the stock market called market breadth. It relates to the number of stocks advancing versus those declining. It helps traders understand the market's overall behavior and gauge the strength of the current market trend. The Market Validity Score is a similar metric.
The Crypto Market Validity images will have these elements:
Unfortunately, I don’t have handy images to illustrate examples for this as it’s not a great “indicator” and a better macro analytical resource.
When the Validity Score is in the top area, it shows that the vast majority of coins in the crypto market are showing bullish price action that, in most cases, has existed for over a month. It’s a state of the market that one could describe as “overheated” or “overbought,” but basically, everything is profitable, and that can’t last forever. Major market corrections occur from this state. Profit-taking is a consideration when at this level. When the Validity Score is in the bottom area, it shows that the vast majority of coins in the crypto market are showing bearish price action that, in most cases, has existed for over a month. It’s a state of the market that one could describe as “oversold,” but basically, everything is or has crashed. This condition is slightly different than the top area because the crypto market goes through more prolonged periods of bearish extremes, where the bullish extremes come in spurts. Bull markets are born from this state. Long-term dollar cost averaging is a consideration when at this level
The market is predominantly bullish when the validity score is ABOVE the zero line. One could assume a bullish bias, look for coins in a bullish price structure, or consider bullish trade signals to enter.
The market has shifted to predominantly bearish when the validity score is BELOW the zero line. One could assume a bearish bias, look for coins in a bearish price structure, or consider bearish trade signals to enter.
The market is built from the bottom up. When the Validity Score is in the bottom zone, the most important thing to do is look through charts or use a screener to identify coins with consistent positive gains daily. Alternatively, identify the coins holding supports and are consolidating while everything else fails. The first coins to break resistance are the market leaders that the “early” folks know something about while everyone else is unaware of. While most still think the market is dying, you can determine the coins that will be the narrative drivers before others.
The top can go on for longer with laggards. When the Validity Score is in the top zone, it’s not all doom and gloom and the end of the market immediately. As a whole, the market moves slowly. Individual assets can continue the run while most others fail. Breakout plays can still be considered, but tight stop losses under close support will protect you from fakeouts. In this instance, though, take the loss and don’t average down the position because it may be that you just bought the top of the market.