Bollinger Band Squeeze in BTC

Not since March 2019 have we seen the upper and lower Bollinger bands come as close as they are now only $600 apart. The narrowing range of the Bollinger bands is a sign that the volatility has fallen and remained at an extremely low level. The previous occurrence of such a narrow gap between bands directly preceded a $10,000 price advance.

This narrowing of band width followed by a subsequent breakout is known as a Bollinger Band Squeeze.  According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band. A new decline starts with a squeeze and subsequent break below the lower band. Bollinger suggests that it is necessary to look to other indicators. He suggests using the relative strength index (RSI) along with one or two volume-based indicators.

Another indication of breakout direction is the way the bands move on expansion. When a powerful trend is born, the resulting explosive volatility increase is often so great that the lower band will turn downward in an upside break, or the upper band will turn higher in a downside breakout.

In any case you can see by our charts the similarities and traits of this movement with that prior to the last major rally in Bitcoin. One thing that can be said however is that the narrow band width lasted quite a bit longer (almost 4 months) before the breakout so if anything is to be gleamed it is that our current assumption of a stable trading range and sideways action for up to 2 and a half more months before a breakout, the longer the stability the brighter the sparks.