Bollinger Bands Are Getting Very Tight


Bitcoin volatility has considerably reduced with the biggest crypto maintaining a price above $5,000 in a sideways movement for the past few days.

One of the most popular measure of volatility is the Bollinger Bands. These are described as:

“A band of three lines which are plotted in relation to prices. The line in the middle is usually a Simple Moving Average (SMA) set to a period of 20 days (The type of trend line and period can be changed by the trader; however a 20 day moving average is by far the most popular).

The SMA then serves as a base for the Upper and Lower Bands. The Upper and Lower Bands are used as a way to measure volatility by observing the relationship between the Bands and price.”

These bands are apparently getting very tight, with it likely that the tighter they are the more volatile an up-break or down-break.

Bollinger bands, BTC price, April 2019.

The main thing to see here for non-traders is that red line, which is the SMA. Then you have the blue line bands above and below.

These bands widened considerably as bitcoin jumped, but are now getting tighter and tighter on H4, with it more clearly seen on two hours candles. A trader says:

“The bottom indicator is 32 different periods of bollinger bands, scaling logarithmically.

Blue and green values represent a very tight bollinger band.

Yellow and red represent a bollinger band with wayyyyy too much width. The more width on a bollinger band, the more volume will be required to cause its expansion again.

So, load up the following bands on your chart for the current outlook on BTC. The periods will change as new candles close, but these should be good for 24 hours or so.

80 period, 1.25 stdev. (shown in orange)
Movement outside of this band is very unlikely at this time, as the “volatility overhead” of longer compressing bollinger bands clamp down around price.

The 80 period is the longest period that doesn’t have excessive mass, meaning any period above it is unlikely to reexpand, which means price is unlikely to go outside of the 1.25 stdev of the 80 period.

350 period, 1.25 stdev (shown in teal)
If price reenters this band, btc is fucked and goes down to the 350 MA with high probability which is currently at 4,150.

Longer periods of mean reversion can cause shorter periods to reexpand, which implies down is more probable than up (since reexpanding the 80 band to the downside would require less volume than it expanding up, as the draw of the longer period mean reversion would override it and allow the expansion of longer periods.

1730 period, 1.25 stdev.
This was the previous mean reversion target and is a pivot for sustainable trend. if we are above the 1730 mean, we will test the weekly 50 next. I do not believe we will break above the 1730 mean however.

If you don’t understand some of the vocabulary, read this.”

We tried to get the man himself to comment, John Bollinger, but have received no response in time for publishing. Another famous trader says:

The tightness of bands doesn’t by itself suggest direction. It instead indicates whether a breakout is likely and potentially the intensity.

In plainer language with some common sense, the market is just not very sure whether it should go up or down and is very happy to stay where it is for now.

Bitcoin’s price, April 14 2019.

As can be seen without any indicator, bitcoin has been moving in a straight line recently, with volatility lower and lower.

At some point you’d expect it to figure out a direction, at which stage you’d be in a better position to decide on your bet if you’re a trader.

If you’re a hodler, you can enjoy a quieter time with both bulls and bears now probably taking a break from trying to scare you or make you fomo jump.

A sideways here is interesting, however, but only if it breaks up. If it breaks down, then we’ll have to wait and see what it does after the next sideway.



Leave a Reply

Notify of