Ethereum has outperformed most of the crypto market. It was also one of the best performing mainstream assets to invest in, with the $ 11,000 incentive check. Those who did, more than doubled their money by putting it in the smart-contract-focused altcoin.
But it may now be “time to pay attention” as the maker of a popular technical analysis indicator would say. The tool that made this way trader and analyst could signal that there will be a drop of between 50 and 70% in Ethereum, depending on how the tool is used.
Bollinger Bands Explained Briefly: Quick Facts About The Technical Analysis Tool
The Bollinger Bands are a technical analysis tool used to find support, resistance, gauge volatility, and act as a buy or sell signal. This extremely versatile tool is one of the most popular tool among cryptocurrency analysts.
The tool itself was made by traditional brand John Bollinger. However, Bollinger often looks at cryptocurrencies and shares his comments about Bitcoin and how it responds with the indicator.
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As someone who knows the tool inside and out, Bollinger regularly warns of “headaches” or calls it out when “it’s time to pay attention.”
Bollinger does not evoke any of those critical moments here, but that’s because he rarely notices Ethereum. And its Ethereum that exposes the unholy signal.
ETHUSD Weekly Bollinger Bands | Source: TradingView
Indicator indicates between 50 and 70% correction in Ethereum
Bollinger Bands are used all over the world of finance, not just crypto. But because cryptocurrencies are particularly volatile, the volatility measurement tool can be particularly handy.
If the tool cuts, it means that the volatility is low and at the point will explode quickly. As bands expand, it means that volatility is highest.
As much as 90% of the price action takes place within the bands, so if assets close outside the bands, it is either a sign that a reversal is near, or if supported by strong volume, strong continuation is likely.
When Ethereum first closed outside the Bollinger Bands at its recent rally, volume helped lift the altcoin higher for three more consecutive weekly closes. The tide was just beginning to turn in cryptocurrencies, just as the dollar began to rebound.
It has caused Ethereum to start falling and is currently supported by the top Bollinger Band. Closing back in the tires probably means the rally is over, and significant downside will follow.
This scenario is one of the disadvantages of cryptocurrencies that are growing so fast – they are correcting even harder than most other assets. This is also the reason why the Bollinger Bands are so useful in technical analysis of cryptocurrency.
In the past, Ethereum closed back in the Bollinger Bands after a strong rally resulted in an accident between 50% and 70% (pictured above).
ETHUSD Weekly Bollinger Bands | Source: TradingView
A 50% fall from the current high, Ethereum would take back up to around $ 240-250 to confirm the level as support. As the retracement goes deeper – as much as the higher end of the data – Ethereum could fall back to prices around $ 140.
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That depth of a retracement at this point does not seem likely, but corrections from the past have resulted in so much. Ethereum’s entire full time, where the first major weekly close took place in the Bollinger Bands, resulted in a more than 90% fall.
The 2019 peak after Black Thursday brought Ethereum down 70% again. Will the third time be the charm and last fall before the bull market begins?
