Bitcoin’s daily Bollinger Bands have narrowed to one of their tightest readings in the past two and a half years, according to Barchart, a setup that points to compressed volatility and a market in consolidation. BlockBeats said the pattern suggests Bitcoin may be preparing for a larger move after an extended period of tightening price action.
The report also outlined how Bollinger Bands are constructed: a middle band that is typically the 20-day simple moving average, an upper band set at the middle band plus two standard deviations, and a lower band set at the middle band minus two standard deviations. When the distance between the bands shrinks sharply, it usually reflects a drop in volatility.
Based on historical observations cited by BlockBeats, periods of unusually tight Bollinger Bands are often followed by a directional breakout. The move does not imply a fixed direction, as price can break either upward or downward. The outlet added that a sudden expansion in volatility after an extremely low-volatility phase is a common market pattern.
Bitcoin’s daily Bollinger Bands have tightened to one of their narrowest widths in the past 2.5 years, according to Barchart on Oct. 20.
The reading suggests Bitcoin is in a tightening consolidation phase, with volatility compressed and the market potentially setting up for a larger move.
Bollinger Bands point to unusually low volatility
BlockBeats noted that 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
Historically, when the bands contract sharply, the market often sees a directional breakout afterward. That breakout can come on either side. BlockBeats also said volatility frequently expands suddenly after sitting at extremely low levels.
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