Bitcoin price (BTC) performed as expected over the past week as 8% was shaved off its price of $7,571.80 between Dec. 8 and Dec. 14. Does this mean the digital asset is due for a reversal? As much as Bitcoin holders and I want this, one has to look at the facts.
Currently, Bitcoin has a distinct lack of bullish indicators that offer any hope of a short term reversal and even John Bollinger, the founder of the Bollinger Bands indicator tweeted out this somewhat cryptic tweet on Dec. 13.
“Most cryptocurrencies are at or near Bollinger Band Squeeze levels. Time to pay attention.”
For those that don’t know what this means, allow me to explain.
Daily crypto market performance. Source: Coin360.com
What is a Bollinger Bands squeeze?
The Bollinger Bands indicator is a tool that many traders can’t live without. Made up of 3 lines, the central line in red is the moving average (MA) and the lower band serves as dynamic support, whilst the upper band serves as a dynamic resistance.
BTC USD daily chart. Source: TradingView
Genius in its simplicity, the bands automatically widen when volatility increases and contract when volatility decreases. For day traders, it’s an invaluable tool to have, as the moving average can have several purposes.
For example, if the price of an asset is sitting on the MA for a long period, which is typically when there is little to no volatility, the upper and lower bands begin to close in and “squeeze,” which results in a breakout.
When the bands are wide, traders usually watch the price play between the MA and resistance, which means the MA serves as a level of support as well as between the MA and the support, in which case the MA becomes the resistance.
When the bands are wide, it is typically a good time to trade, as you one can ride between the support and resistance. It’s almost predictable price action.
However, when the BB squeezes, it becomes difficult to establish which direction the breakout is going to occur, and this is…