The inventor of the Bollinger Bands, a widely used technical indicator, is giving Bitcoin traders a heads up. As per the indicator’s signal, John Bollinger expects increased volatility in coming days now that bands are tightening as BTC prices flatten, consolidating within a narrow trade range in the daily chart. From the Bitcoin daily chart, a “Bollinger Squeeze” is formed.
Bitcoin Traders should Pay Attention
Most crypto currencies are at or near Bollinger Band Squeeze levels. Time to pay attention.
— John Bollinger (@bbands) December 13, 2019
Traders who use the Bollinger Bands to filter out signals often watch out for this pattern. When it prints, usually high volatility is on the offing. In this scenario, BTC prices are largely stuck on range mode. As prices consolidate–bulls are overwhelmed by a wave of incessant bears, aggressive traders can begin placing limit positions on either side of the divide in expectation of a relieving price rally, or a discouraging dump.
Any drop below the $6,500-$7,000 support zone could devastate the market. It may not only discourage participation as traders move capital to stable coins, but low prices will force small-scale miners to switch off their rigs.
Trading Using the Bollinger Bands Indicator
Even so, the Bollinger Bands indicator lags and while it guides technical analysts, it will remain to be a patience game since prices may explode in either direction.
The Bollinger Bands strategy uses three volatility bands. The middle band is the 20-period MA, while the other two measure undervaluation and overvaluation of the digital asset whose chart the indicator is plotted on.
Often, when a whole candlestick prints above or below the upper or the lower band, a savvy trader can sell or buy the asset, countering the existing trend and capitalizing on the trading opportunity.
Also, when bands diverge and candlesticks form along the upper band—in an uptrend, or the lower band—in a downtrend, often the underlying momentum is strong. In that case, technical analysts recommend trading with the trend.
A Squeeze has Formed, road to $9,000?
Presently, because the Bitcoin market is choppy and consolidating following the break below the $8,000 mark in late November, BB shows that there is a squeeze. Aforementioned, a breakout because of this accumulation is on the offing, benefiting HODLers.
If there is a lift off, supportive fundamentals and the fact that BTC prices have been in a deep correction, dropping by over 40% after soaring to $13,800 in June 2019, could propel prices towards $9,000 as 2019 closes with a bang.
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Dalmas is a very active cryptocurrency content creator and highly regarded technical analyst. He’s passionate about blockchain technology and the futuristic potential of cryptocurrencies and enjoys the opportunity to help educate bitcoin enthusiasts through his writing insights and coin price chart analysis. Follow him at @dalmas_ngetich