Yesterday, Bitcoin suffered a crash that took the asset back down to $11,107 at the low on Coinbase. After a small rebound leaving a wick behind, BTCUSD closed the daily back inside the Bollinger Bands, potentially preventing further downside.
It has the indicator’s creator on the lookout for an “upside reversal” in the first-ever cryptocurrency before initiating a long trade. But what exactly should traders and investors look for to signal that an upside reversal is taking place?
John Bollinger Calls Out Potential BTCUSD Upside Reversal After Fall To Bottom BB
Financial analyst John Bollinger has been trading for decades. He created a tool bearing his name that can be used for all kinds of technical analysis.
It is among the most versatile, and therefore commonly used tools today. The Bollinger Bands measure volatility and supply a moving average to follow for potential resistance and support, as well as two standard deviations of that moving average that also act as resistance or support.
When assets close outside of the bands, the move often picks up in ferocity – something that Bitcoin bulls managed to narrowly escape just moments before yesterday’s daily candle close.
After Bitcoin touched the bottom band, the asset bounced leaving nothing but a wick behind. BTCUSD closed the daily back in the bands, which could signal a reversal is underway.
Bollinger, who often comments on Bitcoin and other assets, told the world via Twitter that he’s “looking for a upside reversal” in Bitcoin before taking a long position. Long trades are a position in which traders expect the price to go up, and profit if they are correct.
But there are certain conditions that must be met for the Bollinger Bands to signal an upside reversal.
BTCUSD John Bollinger Tweet: "Looking for a upside reversal here to initiate a long" | Source: TradingView
What An Upside Reveral In Bitcoin Looks Like, According To The Bollinger Bands
The first major step in a reversal, according to how the Bollinger Bands work, is a close back inside the bands. Bitcoin bulls already accomplished this feat with yesterday’s daily close.
Had they not, bears could have potentially “rode the bands” back down to far deeper lows. In an opposite example, after Bitcoin broke out through $10,000 resistance in late July, BTCUSD bulls rode the bands all the way up over $12,000 before the asset closed back inside the bands.
It is not uncommon for assets to test the same top or bottom band twice before reversing. Bitcoin has now had two tests of the top bands, which rejected the asset back down through the mid-BB, all the way to the bottom BB where it is holding support.
BTCUSD Bollinger Bands Mid-BB Short-Term Reversal Target | Source: TradingView
Another test of the bottom BB is possible, however, if Bitcoin can make it back up through the mid-BB line like it did above, the upside reversal John Bollinger is looking for becomes much more likely.
BTCUSD holding an added retest of the mid-BB also would bring more confirmation before taking a position.
If Bitcoin price can make it through the mid-BB, hold any retests, and push back up into the top BB, we may see a repeat of the last consolidation phase thanks to a fractal forming.
BTCUSD Bollinger Bands Full Upside Reversal Target | Source: TradingView
After topping, a downtrend line brought BTCUSD to the lower BB. This “head fake” as Bollinger calls them, surprised traders when Bitcoin reversed back toward new highs. Could the same sort of scenario happen again?
If so, upside targets reach over $15,000, setting a new higher high on longer timeframes – the signature of a continued and sustainable uptrend.