Barchart said Bitcoin’s daily Bollinger Bands have narrowed to one of their tightest widths in the past two and a half years, a setup that points to a compressed trading range. The signal suggests Bitcoin is in a tightening consolidation phase and may be setting up for a larger move. The report also outlined how Bollinger Bands are constructed: a middle band that is typically the 20-day simple moving average, plus upper and lower bands set two standard deviations above and below that average. Based on historical patterns cited in the report, sharp band compression is often followed by a directional breakout, which can develop either to the upside or the downside. It also noted that volatility frequently expands quickly after sitting at very low levels.
According to ChainCatcher, citing Barchart, Bitcoin’s daily Bollinger Bands have narrowed to one of their tightest widths in the past 2.5 years.
The reading suggests Bitcoin is in a tightening consolidation phase and may be preparing for a larger move.
How the Bollinger Bands are built
Bollinger Bands are a commonly used technical analysis indicator made up of three lines:
- The middle band, typically the 20-day simple moving average (SMA)
- The upper band, calculated as the middle band plus two standard deviations
- The lower band, calculated as the middle band minus two standard deviations
What historical patterns show
Based on historical experience cited in the report, a sharp contraction in the Bollinger Bands is often followed by a directional breakout, which can come either upward or downward. The report added that volatility commonly expands quickly after remaining at very low levels.
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