Chart shows Dogecoin pattern hinting at upcoming volatility surge
Dogecoin (DOGE) is a meme cryptocurrency that is known for its rapid price movements. However, this year has been unusually calm for DOGE, and it has underperformed when compared to the market leaders, bitcoin (BTC) and ether (ETH).
A technical analysis indicator called Bollinger bandwidth suggests that this calm may be temporary and that a storm may be on the horizon.
The Bollinger bandwidth indicator shows periods of varying volatility relative to price gyrations. It is calculated by dividing the spread between the Bollinger bands by the 20-day simple moving average (SMA) of the cryptocurrency’s price. Bollinger bands are volatility lines placed two standard deviations above and below the 20-day SMA average of prices.
Periods of rising volatility are marked by a sharp increase in the distance between the two bands and the widening of the bandwidth. Conversely, the two bands contract and the width narrows or declines during a volatility lull.
An unusually wide or high bandwidth indicates that the ongoing bullish/bearish trend is nearing an end. Meanwhile, an unusually low bandwidth suggests that “the market may be about to initiate a pronounced move in either direction,” as Fidelity’s explainer says.
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When the bandwidth is too high, it’s a sign that the current bullish/bearish trend may be ending. Meanwhile, an unusually low bandwidth suggests that the market may be about to exit a consolidation pattern with a pronounced move in either direction, as Fidelity’s explainer says.
Dogecoin’s daily chart shows that the bands have recently tightened, pushing the bandwidth down to 0.06, the lowest since February 2019, according to TradingView.
Therefore, dogecoin may experience a volatility explosion soon in line with the bandwidth’s tendency to alternate between expansion and contraction. It should be noted that the impending volatility explosion is agnostic to price direction, meaning the big move can be bearish or bullish.
As of press time, dogecoin was trading near $0.073. The world’s leading meme cryptocurrency, currently valued at $10.22 billion, has risen just 3% this year. Meanwhile, market leaders bitcoin and ether have gained 68% and 60% respectively, per CoinDesk data.
Edited by Parikshit Mishra.