Bitcoin price has been trading in a well-defined range lately, but could a multi-month low in the value of the technical indicator be an impending breakout?
According to CoinDesk, the world’s most prominent cryptocurrency has largely moved between $30,000 and $42,000 since late May.
Earlier today, CoinDesk reporter Omkar Godbole wrote about the market conditions for the digital asset, emphasizing a specific technical indicator:
“The Bollinger Bandwidth, a measure of volatility calculated by dividing the spread between Bollinger Bands by the 20-day average of the cryptocurrency price, has fallen to a 2 1/2-month low of 0.15”, he claimed. Did.
Similarly, the lower readings for this indicator came before a significant increase in volatility, Godbole said.
[Editor’s note: Investing in cryptocurrency or tokens is highly speculative, and the market is largely unregulated. One considering this should be prepared to lose his entire investment.
Bollinger Bandwidth Considerations
However, low Bollinger bandwidth, in itself, does not indicate an imminent breakout, analysts said.
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“The Bollinger Bands reflect market volatility and the contraction of the Bollinger Bandwidth is one way to visualize the decline in volatility in recent weeks,” said David Keller, Chief Market Strategist at StockCharts.com.
“In general, a period of low volatility precedes a price breakout. We saw this with bitcoin and narrow Bollinger bands before major price increases in October 2020 and December 2020, and we also saw it on top of bitcoin in April 2021.”
William Noble, the chief technical analyst at research platform Token Metrics, also commented on the situation.
“The width of the Bollinger Bands is a good indicator of [how] long, or how painful, a range trade has become. With the bitcoin BBW falling to .15, it is a numerical expression of the boredom bitcoin traders live with.”
“BBW can sometimes crash and last as little as a month,” he said.
“A low BBW does not guarantee that the limit will be exhausted any time soon.”
Consult additional indicators
Noble said that market watchers could benefit greatly from examining other technical indicators by looking at Bollinger bandwidth.
“When using Bollinger Bands, you want to look for a reversal candlestick,” he said.
“If the bears try to push the market down, but the bulls make a dramatic rally later in the day, it is a sign that the bulls are in control and the range may be exhausted.”
“The same goes for the downside,” Noble said.
“For example, if bitcoin is in a tight range and a problem with the stock market causes a sudden collapse, the sudden impact of the downside could cause bulls to run for coverage.”
Katie Stockton, founder, and managing partner of Fairlead Strategies, LLC, also weighed in, saying that:
“I will always cross-reference any instrument with other indicators.”
He added that when Bollinger Bands “contract, it is time to take a closer look at the levels.”
“So I am looking at the 50-day 30K MA for a breakout, with a more likely breakout (in my work) from an overbought/oversold perspective.”
Stockton wasn’t the only one to talk about potential downsides, as Keller offered insight into the bearish price action the digital asset will experience soon.
“Overall, bitcoin remains in a chart distribution mode, with low highs and lows for most of 2021,” he said.
“Bitcoin has been trending downwards below the 50-day EMA since May, indicating general price weakness. Narrow Bollinger Bands suggest a breakout is imminent, and the distribution pattern suggests that the breakout is minor. likely to happen.”
“Look for $30,000 to remain a key area of support, and a break below $30,000 could open the way for the next downside targets near $27,000,” Keller emphasized.
Disclosure: I own bitcoin, bitcoin cash, litecoin, ether, and eos.