2021-12-28 15:59:31
There will have been many corks popping from bottles over the past week and more to come, no doubt, as the New Year beckons. A famous brand of champagne is, of course, Bollinger, but there is also a famous Bollinger in technical market analysis. Ironically, his most famous indicator can be associated with popping markets.
John Bollinger created his
Bollinger Bands as a measure of range expansion and contraction in a market, measuring bands 2 standard deviations above and below a 20-period moving average.
The width of the bands then becomes a useful indicator. When the Bandwidth is low, it indicates that there has been a period of range trading, and that can point to a period of range expansion (a trend) ahead.
As the chart above shows, the
U.S. dollar index sports its lowest Bollinger Bandwidth since June on this daily price bar scale. We have not included a wave count here but a triangle is one interpretation of the sideways trading since the November high. However, one thing that Bollinger has noted about tight Bandwidth is that the price can initially appear to break out of its range one way, only to reverse and make a bigger trend the opposite way. In this regard, it means that we must be open to the possibility that what might look like a triangle now could morph into a complex sideways correction before popping higher as the dollar index uptrend continues.
Either way, it seems that the U.S. dollar is ready to start the New Year with a bang.
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