Volatility Compression
Volatility compression is a phenomenon where an asset's price range narrows over time, indicating a build-up of energy before a potential major move. This is often observed in patterns like triangles or flags, where the highs and lows converge.
Traders monitor this compression as a signal that a breakout is imminent, even if the direction is initially uncertain. It is a key concept in technical analysis for identifying high-reward setups.
In cryptocurrency, volatility compression can lead to massive, rapid price swings once the energy is released. Understanding this process allows traders to prepare for increased activity and position themselves accordingly.
It is a fundamental indicator of market state, signaling a transition from quiet to active phases.