John Bollinger, the renowned technical analyst and founder of the Bollinger Bands, recently used a Litecoin chart to illustrate a critical trading lesson for crypto enthusiasts.
The financial market expert recently broke silence on social media platform X to address recurring questions about two of his signature concepts: Bollinger Band Squeezes and Head Fakes.
Using the Litecoin historical chart, Bollinger demonstrated how a common market pattern, known as a Bollinger Band Squeeze, can sometimes lead to a false breakout—referred to as a “Head Fake.”
Bollinger Band Squeezes and Head Fakes with Litecoin Chart
Bollinger Bands, a widely used technical analysis tool, consists of volatility bands placed above and below a moving average. When these bands narrow, it signals a period of low volatility known as a “squeeze.”
Traders often anticipate a significant price movement following a squeeze upwards or downwards. However, Bollinger cautions that this anticipation can sometimes be misleading.
In the Litecoin chart, the bands visibly tightened, signaling a squeeze. This was particularly observable in the price patterns LTC engineered in late July when it traded around $65.
Following the squeeze, Litecoin’s price briefly rallied to $76.62, which may have led some traders to believe in a bullish breakout. However, this move also trapped traders who expected a continuation.
Interestingly, John Bollinger himself had commented on the LTC squeeze at the time, noting in late July that it was “time for the coin to wake.” Indeed, Litecoin saw an 8% increase after his statement.
However, the price soon reversed course, dropping sharply—a classic example of a “Head Fake.” Specifically, LTC tanked to $50.43 just days after hitting $76.62.
Essentially, the renowned technical analyst used the Litecoin case to remind traders to exercise caution when interpreting squeeze signals. It underscores the significance of not jumping to conclusions based solely on initial price movements after a squeeze.
A Trading Opportunity for LTC?
In response to Bollinger’s latest analysis, some commenters on X asked for his insight into potential LTC price action based on the current chart. While the renowned analyst has not replied, one commenter suggested that traders might consider buying if LTC surpasses $65 and possibly selling at $75.
At press time, Litecoin was hovering around $64.19, yet to fully recover from the sharp decline of two weeks ago.
Disclaimer: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic’s opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
