• When the two outer bands and the standard deviations of a simple moving average begin to contract, a massive outflow of energy is evident in the market.
• The contraction of outer bands plays a very important role in forming a bitcoin bottom and holding it for new highs.
• BTC reached $14000 levels when the cryptocurrency rallied in the middle band of the simple moving average.
Bitcoin, the largest cryptocurrency, has been trading in the $35000 levels after being pumped $40000 following a tweet by Elon Musk. Currently, BTC is trading at $35,469.00 and is down by 0.84% in the last 24 hours. BTC has depreciated by more than 40% since it reached its all-time high of $65000. Analysts think that a powerful tool for a full reversal after successive breakdowns and rallies in the past may be Bollinger’s Bands. Named after its creator, Bollinger Bands is famous for measuring the volatility of tokens. However, it is used for many other applications in the field of technical analysis.
Contraction of Middle Simple Average Serves a Support or Resistance
When the two outer bands and the standard deviations of a simple moving average begin to contract, it indicates that a massive outflow of energy is evident in the market. The contraction of the outer bands and the middle simple moving average also serves another purpose. They act as a support or resistance. Again, the mean simple moving average can be effectively used as an indicator for buying and selling signals as soon as the price action approaches it. However, the contraction of outer bands plays a very important role in forming a bitcoin bottom and holding it for new highs.
Hitting Lower Bollinger Band may Help BTC Break Through its Resistance
As per the chart of BTCUSD offered by TradingView.com, it is quite obvious that the Bitcoin price action may require a slight touch of the BB lower similar to its bearish phases in the past few months. Moreover, a bit of upper bands after “riding the bands” to new local highs has often given a ride to brand new short term highs. Once the middle simple moving average changes, it switches from a bull market to a bear market. However, the downtrend does not halt until it hits the lower Bollinger band. Back in 2017, the bear market peak resulted in a significant sell-off. However, the price action stayed in the middle band region for almost a year before it dipped in November 2018.
BTC reached $14000 levels when the cryptocurrency rallied in the middle band of the simple moving average. As soon as it lost the mid simple moving average, the market sentiment turned bearish. However, during Covid and black Thursday, BTC was back on the bullish trend and went on to hit its all-time high of $65000. It is expected that if BTC is to hit the lower Bollinger band once again, it may be able to break through resistance and recover its previous highs.
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