If you are new to charting and charts analysis, here is a high level overview of what Bollinger bands and Bollinger band widths are. Bollinger bands were introduced to chart analysis by John Bollinger in the 1980s and its been widely used to gauge market volatility and used to predict huge moves in the near future. Bollinger bands are nothing but a price volatility measurement over time. Bollinger bands have three bands in all, the upper band, the lower band and the middle line. The upper band represents the higher side of the range and the lower band represents the lower side of the range. By default the Bollinger bands account for the 20 days simple moving average line in the center. This SMA can be changed based on your custom property settings. The upper band and lower band are typically 2 standard deviations away from center line. Typical settings of a Bollinger bands are shown below.

  • Middle Band – 20 Day Simple Moving Average
  • Upper Band – 20 Day Simple Moving Average + (2 x Standard Deviation)
  • Lower Band – 20 Day Simple Moving Average – (2 x Standard Deviation)

Similarly Bollinger band width is measured with the following formula. The higher the width the greater the ratio, the lower the width the smaller the ratio.

  • Bollinger Bands Width = (Upper Band – Lower Band) / Middle Band

If the price of an asset is highly volatile, which means it swings wildly over a large range, its Bollinger bands are characterized as very wide. If the same price of an asset is less volatile, which means it trades in a tight range, then its bands are very narrow. The wider a Bollinger band is, the more volatile the asset is trading at. Similarly the narrower a Bollinger band is, the less volatile and more stable the asset is trading at. You can look at the following links for some descriptions of these charting tools. In this article we will be referring to BB for Bollinger bands and BBW for Bollinger bandwidth respectively.

https://www.tradingview.com/wiki/Bollinger_Bands_(BB)

https://www.tradingview.com/wiki/Bollinger_Bands_Width_(BBW)

Just to put it in simple terms, the lower the value of BBW (closer to 0), the more stable the asset is trading at. The higher the value of BBW, the more volatile the asset is trading at. If you are wondering how volatile the Bitcoin price is currently trading at, its at 0.05 to 0.06 which is extremely stable for a volatile asset like Bitcoin. From a historical perspective whenever we see Bitcoin trading with BBW <= 0.1, there is a good potential for a price breakout. Now consider the BB and BBW (thin gray vertical line) of our BTC chart during the September 2013 when the BBW was in a very low range of 0.04 which is similar to a level we are currently trading at. The tight range bound trading around September 2013 got very narrow and the price action is so coiled up, it shot up drastically in the following month to the upside from approximately $115 to $1180 which is a 10x gain in a very short period of time.

Now again consider the BB and BBW (thin gray vertical line) of our BTC chart below during the May 2014 when the BBW was in a very low range of 0.06 which is similar to a level we are currently trading at. The tight range bound trading around May 2014 got so narrow and the price action so coiled up, it shot up drastically in the following month to the upside from approximately $430 to $690 which is a 60% (1.6x) gain in a very short period of time of less than a month. One thing to keep in mind is the overall larger trend keeps intact most of the times, it can drastically go up or drastically go down based on the overall trend in the market.

Now consider the BBW and BB from the following chart, which was trading around October 2015 where the BBW was very low around 0.05 (thin gray vertical line) just like now. Over the next month the price made a huge swing to the upside from $233 to $503, which is a 215% increase in price in a very short period of time. When you keep looking at the tight squeeze spots in Bitcoin and the BBW is very low in the range of (0.01 – 0.07), the price makes a huge jump to the potentially positive side given the market conditions and sentiment.

Consider the following chart for around October 2017 where the range bound trading was very tight and the BBW was around 0.025 which was very very narrow for a volatile asset like Bitcoin. In the next month and a half we had one of the biggest gain in Bitcoin ever in such a short span of time. From Oct 2017 to Dec 2017, we saw a price gain of $5600 to $20000 which is approximately 400% (4x) gain in less than a month which is huge.

We are potentially going to see something similar in price action in the coming 2-3 weeks based on the low volatility we are seeing in the current market. Looking at the current BBW which is around 0.06, its getting tighter and tighter in price action and the market is getting coiled up in a tight range which is potentially going to go the upside in the next month or so. See the chart below for current BBW and make the target for yourself on how much gains you might see based on historical price action from various time periods.

The range looks tight, the price seems right, let the moon ride take flight. Happy trading, safe trading and hope you all make great gains in the next couple of months. This is just my observation from the past Bitcoin charts. Nothing is guaranteed in this market, but usually history tends to repeat itself. In this case there are high chances to see a potential big move up.

BTC: 1E8Uugk3WXwJW2r4m6VS75Xj4gGz9BZt9t

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Responses

  1. CryptosDecrypted

    Very useful post. You explained Bollinger bands well and the following analysis of BTC price action stemming from extended low BBW was comprehensive and somewhat compelling. However, as you note market sentiment and trend are also critical and both of these are bearish at the moment – so 50-50?

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    1. BEJAWADA Post author

      Thanks for the comments. Markets are cyclical and humans trade with emotions. Given all the bullish news and indicators for the next couple of months, I do think there is a potential upside in the 4th quarter.

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    1. BEJAWADA Post author

      Thanks for the comments. At this point in time bears are weak and tired and bulls are showing signs of life and are defending the $6k price. Slowly and steadily institutional FOMO will kick in over the next few months. Look at all the positives Yale university endowment, ICE and Bakkt, Coinbase funds catering to institutions, organizations ready to insure crypto, TD Ameritrade etc. etc. Things are looking up slowly and steadily.

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  2. sandwichbill

    I agree with you that we will see the price move to the upside due to institutional interest, but I’m not sure that’s going to happen just yet. Interesting BB analysis, I’ll keep an eye out for your articles.

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