Litecoin is among the crypto market leaders today, rising 6% on the day, while Bitcoin remains flat. The single-day rally in LTCUSD could be enough, however, to generate a short-term buy signal using Bollinger Bands. What could this mean for the altcoin, and could it be a sign that a more positive trend is beginning?
Possible Buy Signal Setup Lights Up in Litecoin
Litecoin has been one of the most painful coins to hold in recent years. In 2017, silver against Bitcoin as digital gold had a monumental rally that lasted nine months. During that nine-month period, Litecoin gained over 10,000% and placed the coin among the top ten cryptocurrencies by market cap.
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Much has changed since then, with Litecoin now ranked 18th by market cap, barely holding on to its top 20 status. The altcoin has been trending sideways for the past seven years since the 2017 bull run, much to the disappointment of investors.
Better days may be ahead, at least in the short term, as LTCUSD is working on a buy signal according to the Bollinger Bands.
All About Bollinger Bands and How to Use Them
Bollinger Bands are not just a technical indicator but act as a complete trading system. The tool is primarily used to gauge volatility, as the bands narrow and tighten when volatility is low. When the bands start to widen, it is a sign that volatility is returning.
In addition, however, Bollinger Bands can also generate a buy and sell signal depending on where the price is in relation to the upper and lower bands. Each band is set at +2 standard deviation from the midline, which is a 20-period simple moving average.
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The idea is that only the strongest and most likely sustainable moves will be able to break out of the upper or lower band. A 6% surge in LTCUSD today was enough to get above the upper Bollinger Band. A close above the upper band is needed to confirm a buy signal, especially when supported by higher than normal volume. A downward trend in volume has been broken, checking this additional box when setting the coin up for a buy signal.
Tony Severino, CMT is the author of CoinChartist Newsletter (VIP). Sign up for free. Follow @TonyTheBullBTC & @coinchartist_io on Twitter. Or join the TonyTradesBTC Telegram for daily market insights and technical analysis education. Note: Content is educational and should not be considered investment advice.
Featured image by ChatGPT, charts by TradingView.com