Bollinger bands are one of the most actively used financial trading instruments and volatility indicators te technical analysis today. Bollinger bands were developed by the American financial analyst, author, and technical analysis contributor John Bollinger ter the 1980s and were trademarked spil of 2011. Not only has this volatility indicator bot used strenuously by stock market traders, but it now has a valid use case te analyzing cryptocurrencies.
Bollinger bands are price channels or &lsquo,bands&rsquo, that are plotted below and above the price of a cryptocurrency, thus indicating the trading range. The inward line represents a moving average for a specific period and is denoted spil a midline. It is essentially the average price of a cryptocurrency overheen a specific number of days. Bollinger bands typically use a 20-day moving average, which is the average price of a cryptocurrency overheen the last 20 days. The outer lines form the range or &lsquo,bands&rsquo, te which the price is expected to stir up or down, and are typically two standard deviations (standard deviation measures the amount of variation/deviation from the mean) from the midline.
A price budge towards the upper plakband indicates strength, while a budge toward the lower end of the liaison indicates weakness. During periods of low volatility (enhanced price stability, not spil many extreme price movements up or down), the Bollinger bands tend to narrow. When the price volatility is high, the bands tend to widen. This can be used to foreshadow certain upcoming trends, spil a period of low volatility or narrow bands is usually followed by a period of widening bands, and vice versa.
The bands should contain 88-89% of the price activity, which makes a budge outside the bands significant
When the price touches or moves outside of the relatie on either end, it is considered a &lsquo,tag&rsquo, and not a trading signal. When the upper liaison has bot breached, it usually represents that the cryptocurrency has bot overbought, and will keurig. This is usually a good time to sell. When the lower liaison has bot breached, it typically signals that the cryptocurrency has bot oversold, which is a good entry point to buy. When fresh highs are reached outside the tape, instantly followed by daily highs inwards the tape, it typically signals a trend reversal. The same is true on the opposite end.
The bands can be used to determine the strength of a trend and to identify entry and uitgang points for trading. It is best used spil a brief term trading indicator, but can provide value for mid- to long term analysis spil well. That being said, Bollinger bands are not spil useful when used alone and should be used ter conjunction with other indicators for trend confirmation. Some other good indicators to use along with Bollinger bands would be the Relative Strength Index (RSI) and Volume to name a few, spil you are looking for trend confirmation. When you think a cryptocurrency is bullish, attempt to confirm your hypothesis by using other technical indicators to confirm the trend. Once you have confirmation, you should have more confidence te placing your trade.
A general rule of thumb is to buy when the price is near the bottom of the Bollinger tape and sell when it cracks above the midline or gets close to the upper verhouding. This is not always the case however, which is why it&rsquo,s best to use other indicators ter conjunction with Bollinger bands and an overall trend analysis ter order to make the most informed trade decision possible.