What we’re seeing playing out this morning on Litecoin is a typical Bollinger Band “Squeeze”. According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline.
Lets take a look at the hourly chart below (click to expand).
As you can see I’ve drawn the Fibonacci study from the low of the 14th at 12.8 to the high of the 14th at 17.22. Suprisingly, since the following five days have passed, price has been contained within those two levels.
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Price did actually drop down the the 61.8% Fib level virtually to the pip at 14.5, on the evening of the 16th, before reversing, which coincided with a change in the Accelerator and Awesome Oscillators changing colour, plus a change of direction of the Stochastics.
Hence price rose to the 23.6% Fib level at 16.17, touching it a few times, barely a skirmish quite frankly.
As a result, the Bollinger Bands have slowly been coming together over the past 24 hours. Right now it’s hugging the 38.2% Fib level. I’d expect price to continue to bounce between the 38.2% and 50% Fib levels for the rest of the day, with the squeeze continuing to have its grasp.
Analysis provided by Ashton Fraser, learn more about his trading strategies at Forex Reversal.