After weeks of nothing happening, everyone would like to see a return of volatility, but would it be such a good idea if the market went down? I’m not so sure. Back today to volatility indicators.
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Fast, that’s for sure! Just go back to my article from last week to rewrite today’s article. Bitcoin hasn’t moved for several days, and neither have the indicators.
On the orderflow side, the situation is also identical to last week. Small chart update:
No noticeable change, apart from the negative funding for altcoins. A real sign of bottoming for me, so my conclusion is the same as last week. If we’re going to go bearish, we’ll need a bullish phase first, as there would be too many winners as it is.
I told you it would be quick! But let’s not stop there! I’m going to show you a few volatility indicators you can use to confirm that the market is indeed asleep.
Their purpose is to determine when the market is calm and when it’s completely crazy. Why? Quite simply, because a market is always moving from a non-volatile to a volatile market, and vice versa. This makes it possible to determine the bottom and top phases of the market.
This is one of the most classic. Bollinger bands represent a simple moving average (usually 20). They consist of two bands, an upper one (to which we add one standard deviation) and a lower one (from which we subtract one standard deviation). Graphically, we obtain the following:
This chart shows two things. When the bands move closer together, they are said to be contracting, meaning that the famous standard deviation is decreasing, so that price variation is becoming smaller and smaller over the chosen period. Conversely, when they move apart, they are said to widen, signifying an increase in price volatility.
The CHOP Index
A lesser-known, but still widely used indicator, the CHOP index. It is calculated using the following formula:
CHOP = (ATR(n) / (HIGH(n) – LOW(n))) * 100
Since ATR (Average True Range) is also a volatility indicator, we can say that CHOP is derived from it. High and Low simply represent the highest/lowest over a given period.
As we can see from the image above, there are two zones to be aware of here. The one above 60 indicates that the CHOP index is loaded, so an impulsive movement should be coming, and the one below 40 indicates that the CHOP is unloaded, so the price movement should calm down.
It can thus be used in trading/investing (depending on the time scale) to determine the most propitious moment to move to buy/sell. In general, we buy when the CHOP is loaded (buying on the upside or the downside) and sell our buy/sell position when it is unloaded.
This is an in-house indicator by Ponzi one of the Throne teachers. This indicator is based on a long period (200).
In red, the volatile zone; in green, the low-volatility zone.
In this long-term example for Bitcoin, the volatility indicator can be used to find tops and bottoms. As with any volatility indicator, it won’t give you an indication of price direction, but rather a market condition conducive to a particularly long-term buy or sell, as seen here.
The bear/boring market, depending on which side you’re on, is well underway and wearing us down with long, volatility-free phases. It’s time for you to maybe disconnect the screens and enjoy life IRL or research projects. After all, when the markets pick up again and we’re back to the classic 10 or -10% swings a day, you won’t have time for such things! Just enjoy!
I hope you enjoyed this article and I wish you a wonderful week! See you next week.
Entrepreneur & Dad, passionate about cryptocurrencies, I describe for you the technical analysis. Cofounder of Cryptocademia, a free platform to learn all you want/can about blockchain ! Meet you there at https://www.cryptocademia.com
My job: look at charts and interpret them for you.
Beware, I do not know all the truths.