The tool consists of a moving average and two standard deviations, acting as the upper and lower “bands.” As much as 90% of price action takes place within the bands. Reversals also take place when price reaches the top or bottom, giving them a band-like effect.
The bands widen and contract depending on volatility. And because the notoriously volatile asset is so lacking in volatility lately, analysts are comparing instances where the bands have tightened this much to make sense out of what to expect next.
Data shows that the bands have contracted to historic lows – lows that often trigger an explosive move. After yesterday’s powerful rebound from low $9000s, it has even caused the creator of the Bollinger Bands to speak up about Bitcoin.
The leading cryptocurrency by market cap has now held nine consecutive daily candle closes above the middle-line. The current price action is in the process of testing it for the tenth time in a row on the daily.
Bollinger’s comments are likely in reference to this fact. An asset’s price falling through the middle line of the Bollinger Bands can act as a signal to sell or short.
Above the middle line, the opposite is true. The middle line supporting price for nine daily candles either suggests that its time for Bitcoin to test the upper band, or it could be the last stand before a major drop.
Other times Bollinger has appeared, telling the public “it’s time to pay attention,” usually an explosive move follows. And while that’s not what his comment was this time around, due to how tight the Bollinger Bands are and with so many tests of the middle line, it certainly is time to pay attention to BTCUSD.