Bitcoin
Bitcoin (BTC) Indicator That Predicted Late-2023 Volatility Explosion Is Lighting Up Again
Traders bored with bitcoin (BTC)range days may want to return to their computer screens. An indicator called “Bollinger Bandwidth” that successfully predicted the late 2023 volatility boom is shining brightly again.
Bollinger Bands are volatility bands placed two standard deviations above and below the 20-day/weekly simple moving average of an asset’s price. The band width, an unlinked oscillator, is derived by dividing the spread between the volatility bands by the 20-period SMA.
Bitcoin’s Bollinger Bandwidth has fallen to 20% on the weekly chart, a level last seen days before BTC broke out of its multi-month trading range of $25,000 to $32,000 in late October. Prices broke above the $40,000 mark towards the end of the year and surged to record highs above $70,000 in March of this year.
The latest 20% reading comes after four months of trading between $60,000 and $70,000, except for occasional dips to $55,000.
The bandwidth showed a similar reading before volatility bursts in November 2018, October 2016, mid-105 and mid-2012, as CoinDesk discussed in October.
Volatility is said to be mean-reverting. So a narrower band, representing price stability, often precedes a breakout in either direction or a burst of volatility. Conversely, a wide band indicates a cooling period on the horizon.