John Bollinger, renowned financial trader and creator of the widely recognized and used "Bollinger bands" indicator, recently shared his insights on the crypto market, focusing on Litecoin in particular.
Bollinger shared a graph of the LTC price, emphasizing that “a picture is worth a thousand words.” He used this visualization to answer his followers’ queries about his model’s stems and “Head Fakes.”
A head fake is when the price of a cryptocurrency moves in one direction (i.e. up or down), enticing traders to initiate a purchase, but then unexpectedly reverses direction.
The Bollinger band contraction occurs when the bands narrow, indicating a period of low volatility. This scenario often precedes significant price movements as the market gains momentum. Traders view this as a potential breakout point where prices can quickly rise or fall once the narrowing is over.
From the picture is worth a thousand words department. I get a lot of questions about Bollinger Band Squeezes and Head Fakes. $LTSUSDhttps://t.co/fzdLvxee8F
– John Bollinger (@bbands) August 13, 2024
Head Fakes, on the other hand, occur when the market appears to break in one direction but quickly reverses, which can lead to losses for traders who react to the initial move without confirmation.
The chart of the price of Litecoin that Bollinger shared illustrates this concept well. In late July, Bollinger’s bars on the LTC chart began to converge, signaling a contraction.
During this period, the price briefly hovered above the upper band, but quickly fell back below it, causing the value of the cryptocurrency to drop. As a consequence, the bands began to drift apart as volatility increased.
After bottoming out near the lower band, Litecoin recovered to around $63 amid the broader market recovery. According to Bollinger’s analysis, the next key level for Litecoin is $65. If LTC breaks above that point, altcoin could retest the upper band, currently at $75.
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