Bitcoin’s low volatility reading may be forewarning a significant move


The weekly bitcoin chart shows signs of low volatility. For example, consider the Bollinger Bands Width indicator (BBW) beneath the price chart. It is currently at 0.37 (green rectangle). A drop below the red dashed horizontal line at 0.4 indicates a noticeable reduction in the cryptocurrency's volatility. Bollinger's theory suggests that volatility squeezes are precursors to expansion in volatility.

However, it says little about the direction of the ensuing breakouts. The red dashed vertical lines indicate the times that the BBW increased above 0.4, matched with an expansion to the downside. The blue dashed verticals show the time that jumps to the upside accompanied the increase above 0.4.

Given the current reading, we are watching for the BBW to move above 0.4. Again, adding a trend-following indicator will be helpful here to help determine the direction of the breakout.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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