Dogecoin (DOGE), the well-known joke cryptocurrency, has shown an uncommon stability throughout this year in contrast to its reputation for volatile price fluctuations, notably lagging behind the market leaders bitcoin (BTC) and ether (ETH). The Bollinger bandwidth, a fascinating technical analysis indicator, however, suggests that a storm may be brewing.
By calculating the separation between the Bollinger bands and the 20-day simple moving average (SMA) of a cryptocurrency’s price, the Bollinger bandwidth provides information on the relative volatility of that asset. Bollinger bands are volatility lines that serve as reference points for price changes. They are positioned two standard deviations above and below the average of the 20-day SMA.
A broadening or narrowing of the bands, together with a matching shift in bandwidth, are indicators of volatility changes. Increased distance between the two bands and a broader bandwidth are signs of rising volatility, while decreased distance between the bands and a smaller bandwidth are signs of low volatility.
The current bullish or bearish trend may be nearing its conclusion if the bandwidth is exceptionally broad or high. In contrast, as indicated by Fidelity’s explanation, an exceptionally low bandwidth signals that the market may be ready for a significant move in either way.
According to TradingView data, the Bollinger bands on Dogecoin’s daily chart have lately been tighter, which has caused the bandwidth to drop to 0.06, the lowest value seen since February 2019.
Due to the indicator’s propensity to oscillate between expansion and contraction, the tightening of Dogecoin’s Bollinger bands suggests the possibility of an impending spike in volatility. Importantly, this upcoming spike in volatility is unrelated to price movement and has the potential to cause a sizable move in either the bullish or bearish direction.
As of the time of publication, Dogecoin has a market value of $10.22 billion and was trading at around $0.073. Surprisingly, the most popular meme cryptocurrency in the world has only had a small 3% price growth this year while the market leaders, bitcoin and ether, have seen increases of 68% and 60%, respectively.
The future price trajectory of Dogecoin is still unknown as investors prepare for the impending storm signaled by the Bollinger bandwidth. For traders and aficionados alike, the impending spike in volatility might drastically affect the fortunes of the cryptocurrency and bring both dangers and possibilities.