Definition ∞ Volatility compression describes a market state where the degree of price fluctuations for an asset significantly decreases over a period. This reduction in price movement indicates a tightening trading range and often suggests a period of market indecision or accumulation. It typically precedes a breakout, where prices move sharply in one direction once the compression resolves. This condition implies a temporary equilibrium between buying and selling pressures.
Context ∞ Market analysts often highlight volatility compression in cryptocurrency charts as a technical indicator suggesting an impending large price move. News reports might reference this phenomenon when discussing periods of low trading activity or before significant market events. Understanding volatility compression helps in anticipating potential future market direction after a period of calm.
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