Bitcoin 'Bollinger Bandwidth' Signals Wild Price Swings Ahead

The widely-tracked technical analysis gauge recently tanked to levels that have historically presaged a return of volatility to the crypto market.

AccessTimeIconOct 18, 2023 at 12:26 p.m. UTC
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Traders awaiting a volatility resurgence in bitcoin (BTC) may soon have their moment as the crypto's Bollinger Bandwidth (BBW) has recently hit lows on the weekly charts not seen in several years.

Weekly chart Bollinger Bands are volatility bands placed two standard deviations above and below the 20-week simple moving average (SMA) of bitcoin's price.

The BBW is calculated by dividing the spread between upper and lower Bollinger Bands by the 20-week SMA. It's an unbounded oscillator, with rising values representing high volatility and falling values indicating volatility meltdown.

Recently, the BBW hit a low of 0.20 on the weekly chart, matching the level seen ahead of the volatility explosions of November 2018, October 2016, June 2015 and June 2012, according to data from charting platform TradingView.

"Bitcoin recently witnessed its deepest weekly Bollinger Band squeeze," pseudonymous market observer Game of Trades said on X. "Historically, big moves have typically followed from these levels. But the direction has been the tricky part."

Volatility is said to be mean-reverting. Therefore, a prolonged period of below-average volatility often paves the way for sudden violent price action in either direction. In other words, the market is said to build energy during consolidation, which is eventually unleashed in the form of a notable bullish or bearish trend. The longer the volatility meltdown, the more violent the eventual breakout.

The Bollinger Bandwidth recently fell to 0.20 (Game of Trades/TradingView)
The Bollinger Bandwidth recently fell to 0.20 (Game of Trades/TradingView) (Game of Trades/TradingView)

Edited by Stephen Alpher.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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