Just over three months ago, a technical indicator called the Bollinger Band Width based on the weekly chart of Bitcoin (BTC) signaled an increase in volatility. Sure enough, volatility increased ahead of the recent debut of spot BTC exchange-traded funds (ETFs) in the US.
Currently, the Bollinger Band width on the monthly chart is following the pattern from before Bitcoin’s near-vertical rise in 2016 and late 2020.
The Bollinger band width, created by John Bollinger in the 1980s, consists of three bands. The middle band is the 20-period simple moving average of asset prices, with the top band two standard deviations above and the bottom band two standard deviations below the middle.
Bollinger Band Width refers to the width between the upper and lower bands measured as a percentage of the moving average. Being narrow means it’s trying to move a lot in one direction or the other, like a highly compressed spring.
Historically, the Bollinger Band width on Bitcoin’s monthly chart has been capped at 1%, and any increase from that point is consistent with a long-term rise in price or increased volatility.
The band recently bounced back from 1%, a positive development for Bitcoin bulls.
Although the latest band width pattern is similar to previous bull markets in the past, this indicator itself only tells us that a big price move is coming, but does not tell us anything about the direction.
In other words, past results are no guarantee of future performance, and we cannot deny the possibility of a significant downward movement.
That said, many analysts are bullish on crypto assets, predicting that recently introduced spot ETFs will accelerate adoption and push prices to all-time highs above $69,000 within the next year. are doing.
｜Translation: CoinDesk JAPAN
｜Edited by: Toshihiko Inoue
｜Original text: It May Be Time for Bitcoin Traders to Focus on John Bollinger’s Price Bands Again