Bitcoin prices have traded in a fairly well-defined range recently, but could a multimonth low in the technical indicator’s value signal a breakout?
According to coinDesk, the world’s most popular cryptocurrency has been trading between $30,000- $42,000 since May.
Omkar Godbole , CoinDesk’s reporter, wrote earlier today about digital assets’ market conditions, emphasizing a specific technical indicator.
He stated that Bollinger bandwidth, which is a measure for volatility, was calculated by multiplying the spread between Bollinger bands with the 20-day average price of cryptocurrency. It has fallen to 0.15 at the 2 1/2 month mark.
Godbole noted that similar low readings of this indicator were seen before significant increases in volatility.
[Ed Note: Investing cryptocoins and tokens is highly risky as the market is not regulated. It is possible to lose all of your investment.
Bollinger Bandwidth Considerations
Analysts pointed out that a low Bollinger bandwidth doesn’t necessarily signal a breakout.
“Bollinger Bands are a visual representation of market volatility. A narrowing Bollinger bandwidth is a way to visualize the decline in volatility over recent weeks,” said David Keller, chief market strategist of StockCharts.com.
“In general, lower volatility periods usually precede price breakouts. This was evident with Bitcoin and the narrow Bollinger Bands in December 2020 and October 2020, respectively, before large price rises. We also observed it in April 2021 at the top of Bitcoin’s price.
William Noble, chief technical analyst at research platform Token Metrics also spoke out about the situation.
The Bollinger Band width can be used to gauge how long or painful a trade has been. The boredom that bitcoin traders feel is evident when bitcoin BBW crashes to.15
He said that BBBW could sometimes crash and remain at low levels for as long as a month.
‘Low BBW does not guarantee that the range will soon end.
Consult Additional Indicators
Market observers can greatly benefit from looking at Bollinger bandwidth when checking other technical indicators, according to Noble.
Bollinger Bands should be used with reversal candles, he said.
“If bears attempt to force the market down but the bulls counter with a spectacular attack that day, it is a sign that bulls are in control and that the range may be over.
Noble said, “The same applies to the downside.”
“For example, bitcoin can be in a tight range, and suddenly collapse due to a problem with the stock market. The sudden shock of the down movement can send bulls running for safety.”
Katie Stockton, founder and managing partner at Fairlead Strategies, LLC, also spoke out, saying that:
“I would always cross-reference any instrument with other indicators.”
She pointed out that Bollinger bands “contract” and it was time to closely monitor levels.
“So, I would be monitoring the 50-day MA, and the 30K for a breakout/breakdown. A breakout is more likely in my work from an overbought/oversold viewpoint.
Stockton wasn’t the only one to speak out about potential downside. Keller also spoke up on possible bearish price action for digital assets in the near future.
He stated that the Bitcoin chart was still in distribution mode with lower highs, lower momentum, and a lower overall average through most of 2021.
“Bitcoin’s 50-day moving average has been below a downwardly-sloping 50 day moving average since May. This indicates overall price weakness. Bollinger Bands are tight, indicating a breakout is imminent. The distribution patterns suggest that a break will be less likely.
Keller stressed that $30,000 will remain an area of support. A break below $30,000 could lead to the next downside objective at $27,000.