Bitcoin price is back at around $ 35,000 and failed to recapture $ 40,000, despite building several reversal signals for a low timeframe.
Looking back on past breakdowns after major rallies, a missing ingredient could be required for a full reversal, and this could have something to do with the Bollinger Bands.
Everything about the Bollinger Bands and how to use them effectively
The Bollinger Bands are named after the tool’s creator, John Bollinger. The tool has a wide variety of technical analysis use cases, but is primarily used to measure volatility. When the two outer bands – standard deviations of a simple moving average – begin to contract and narrow, it signals that enough energy is about to be released.
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When the outer ligaments expand, they also act as support or resistance, and the middle SMA does the same. The middle SMA can also be used reliably as a buy or sell signal when the price movement closes through it.
But it is this support and resistance that the outer bands often provide that could be crucial in building a proper Bitcoin bottom and one that holds for new highs.
Bitcoin price action might require a touch of the lower BB as it has during past bear phases | Source: BTCUSD on TradingView.com
Why Bitcoin Price Actions Might Need Lower Band Dynamics
In the graph above, a touch of the upper band after “riding the bands” to new local highs has always led to a short-term top. Crossing the middle SMA from there switches from bull to bear, and the downtrend doesn’t end until the lower Bollinger Band is tapped.
The peak of the bull market in 2017 resulted in a sharp sell-off, but then price action hung in the mid-band for almost a year before plummeting in late November 2018. From then on, Bitcoin “rode the ribbons” again, but this time on the way down.
Related reading | How Extreme Fear Of Crypto Correlates With Bitcoin Bottoms
When the mid-SMA was finally reclaimed, the top cryptocurrency shot straight back to $ 14,000 and hit the upper band again. The loss of the middle SMA started a bearish phase again. A bull run would likely have bloomed earlier, but COVID had other plans and after Black Thursday the buy signal stuck instead.
From there, Bitcoin shot to over $ 60,000, which is now the current all-time high. Bitcoin price is just hanging around again and may need to hit the lower Bollinger Band to gain enough momentum to overcome resistance and recapture highs.
However, as history has shown, getting back above that mid-SMA means a lot and it’s the first step in getting the bulls to resume the rally.
Featured image from iStockPhoto, Charts from TradingView.com