Traders and investors are all familiar with the concept of volatility. At its simplest level, it is nothing more than the compression of time. Price action that might normally occur over hours happens in minutes or seconds. However, if there is one market that exhibits greater levels of volatility than any other – and for many reasons – it is the cryptocurrency market.
However, for Bitcoin, we have seen volatility drain away in the last three weeks as the price congests in a relatively narrow range around the 36,000 to $37,000 area. The question is why. That can be answered by considering the daily chart and, in particular, the price action of May 19. Two significant events occurred on that day.
First, we had the volatility indicator trigger with the small purple triangles at the top and bottom of the candle. That indicator reveals the moment the price action moves outside the average true range (ATR) for the market and timeframe and is triggered in real-time. As a result, we can expect one of two things to happen. Either a reverse in the trend or congestion within the spread of the candle. It is the latter we are seeing at present.
Second, this volatile candle was associated with extreme volume. And given the depth of the wick to the lower body of the candle along with the volume, we can infer this is buying based on the first principles of volume price analysis with further buying arriving four days later.
So what next?
For now, it is a question of being patient and waiting for the price action to clear the volatility candle. Only then are we likely to see a trend develop. This analysis is further reinforced by the fact Bitcoin is trading at the volume point of control, between the R1 and S1 levels on the Camarilla levels indicator, aka the buffer or neutral zone, thereby confirming the current congestion phase. The current stagnation in the price action will end once Bitcoin breaks through either the key S3 and R3 levels, which are just beyond the high and low of the volatility candle itself.