Bitcoin Traders: Time to Turn Attention to Bollinger's Price Bands

Jonathan Stoker Feb 01, 2024, 08:20am 81 views

Bitcoin Traders: Time to Turn Attention to Bollinger's Price Bands

Bollinger Bandwidth of Bitcoin Anticipates Volatility

Approximately three months ago, a certain crypto indicator known as the Bollinger bandwidth, which is primarily constructed on BitcoinBitcoin$42,260 -0.64%'s weekly price alterations, hinted at an impeding turbulence in market volatility. Indeed, a surge in volatility was experienced in the lead up to the fresh introduction of spot BTC ETFs in the U.S.

Monthly Chart Bollinger Bandwidth and Bitcoin

Remarkably, the Bollinger bandwidth on Bitcoin's monthly chart has recently etched a pattern reminiscent of those preceding Bitcoin's almost-vertical surges in late 2016 and 2020. This crypto indicator, Bollinger Bands, was first conceived by John Bollinger in the 1980s and is made up of three separate bands. The central band is basically the 20-period simple moving average of the asset's price. The top band is situated two standard deviations above the middle band, and the bottom band is two standard deviations beneath it.

The Bollinger Bandwidth Explained

The Bollinger bandwidth pertains to the divergence between the upper and lower bands, and this divergence is calculated as a percentage of the moving average. A slim bandwidth is metaphorically equivalent to a tightly wound spring that is primed for a significant move in one direction or the other. From its inception, Bitcoin's monthly chart Bollinger bandwidth has frequently dipped as low as 1%, with following ascents coinciding with prolonged price rallies or instances of upward volatility.

Recent Developments and Future Projections

Recently, the bandwidth has displayed a positive trend for Bitcoin bulls, rebounding from 1%. Although the current bandwidth pattern is akin to those seen preceding previous bull runs, the indicator on its own merely suggests that a significant price shift is imminent, without providing any clear direction. Hence, past performance is not indicative of future results, and there is always a potential for a substantial downward shift.

However, most analysts remain hopeful about the cryptocurrency, with expectations that the newly introduced spot ETFs will hasten adoption and push prices to surpass previous records of $69,000 in the upcoming year.

Edited by Jonathan Stoker

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