Dogecoin Chart Pattern Suggests Volatility Explosion Ahead

Dogecoin (DOGE), the meme cryptocurrency known for its rapid price moves, has been unusually calm this year, underperforming market leaders bitcoin (BTC) and ether (ETH) by a significant margin.

One technical analysis indicator called Bollinger bandwidth suggests it may be the calm before the storm.

The indicator illustrates periods of varying volatility relative to the price gyrations and 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 usually wide or high bandwidth indicates the ongoing bullish/bearish trend is nearing an end. Meanwhile, an unusually low bandwidth suggests “the market may be about to initiate a pronounced move in either direction, as Fidelity

When the bandwidth is too high, it’s a sign the current bullish/bearish trend may be ending. Meanwhile, an unusually low bandwidth suggests 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 the bands have recently tightened, pushing the bandwidth down to 0.06, the lowest since February 2019, according to TradingView.

CoinDesk - Unknown
The Bollinger bands have recently tightening, pushing the bandwidth to lowest in over four years. (TradingView/CoinDesk) (TradingView/CoinDesk)

So, dogecoin could soon see a volatility explosion in line with the bandwidth’s tendency to alternate between expansion and contraction. Note that the impending volatility explosion is agnostic to price direction, meaning the big move can be bearish or bullish.

At press time, dogecoin traded 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.

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