Bollinger Bands: a Complete Guide for Traders exemplified by GoodCrypto

This creates freedom for traders to create setups for multiple possible scenarios at the same time. The 20 SMA is a perfect indicator that can act as a Stop Loss, which should be placed immediately when entering the trade. Once the trade is moving in your direction, you can take profits whenever the support level of the 20 SMA is broken , or whenever you feel like volatility has a strong peak. Technical analysis is a trading strategy that analyzes statistical trends to identify trading opportunities. Yes, Bollinger Bands are effective for analyzing multiple financial markets, including cryptocurrency.

Crypto bollinger bands

Or simply to get an overview of the previous points where the market presented overbought and oversold conditions. Basically, the Bollinger Bands work as an oscillator measurer. It indicates whether the market has high or low volatility, as well as overbought or oversold conditions.

For example, if a Bitcoin trader is using Binance to execute their orders, they should look for the trading pair based on the spot price of Binance. This is because each crypto exchange prices its coins differently. Other popular crypto trading pairs include ETH/USD, ETH/BTC, BTC/USDT, and XRP/USD.

Moving Average Convergence Divergence – The MACD is another momentum indicator that combines multiple moving averages to analyze current market trends. A basic strategy for pairing the MACD and Bollinger Bands is to look for signal crossovers. If a bearish crossover occurs while the price action is hitting the upper Bollinger Band, this is considered a sell signal. The Bollinger Band squeeze is a trading strategy that capitalizes on another key element of the indicator – volatility. In theory, trading the “squeeze” follows a rather similar concept to riding the bands. In both instances, traders are expecting that when one thing occurs, the opposite is soon to follow.

It is better to combine Bollinger bands with other indicators such as RSI or ADX to identify entry and exit points. By doing this, you will be increasing your probability of success in trading. He also served on the board for the Market Technicians Association and also on the Federation of Technical Analysts . He based his Bollinger crypto bollinger bands Bands on Keltner Bands and similar to Donchian channels and focused on volatility standard deviation to make his bands more adaptive. The name Bollinger Bands was coined by chance on one of the programs on FNN. This is a negative number that considers how many standard deviations below the sma/mean the top band will be.

The ATR is calculated by dividing the highest by the lowest price over a certain period. The most common default setting for ATR in Keltner Channels is 20 periods . Are somewhat similar to the Bollinger Bands, and some people place both indicators on top of each other. Doing this allows you to see more confirmations when making the analysis. Both indicators show volatility in a very similar way, but they use different calculations. Good Crypto will soon allow you to set an alert every time the BB is touched.

Are there any tips for trading Bollinger Bands?

That means, if you are trading a trend, you can make more and more profits until there is a strong correction, optimizing your profits and making you more money. BB bands, help to see if a market is oversold or overbought and help traders with analyzing if a market is trending or in a range. Based on these observations, trades can be made accordingly. The chart below is of American Express from the start of 2008.

Crypto bollinger bands

The envelope creates an upper band and lower band set at 2 standard deviations of the SMA. The upper and lower band have an elastic-like effect when price reaches either level of dynamic support and resistance. The tool is named specifically after its creator, a famous trader named John Bollinger. The three Bollinger Bands that make up the technical indicator include the middle band, which is a simple moving average set at 20 periods. The upper band and lower band are then set at 2 standard deviations of the SMA. As prices fluctuate, the bands expand and tighten based on price volatility.

Bollinger Bands Crypto FAQ: Commonly Asked Questions About The Popular Technical Analysis Tool For Crypto Trading

Alternatively, when the bands get too tight, traders tend to assume that the market is getting ready to make an explosive movement. The main idea behind the BB indicator is to highlight how prices are dispersed around an average value. More specifically, it is composed of an upper band, a lower band, and a middle moving average line . The two sidelong bands react to the market price action, expanding when the volatility is high and contracting when volatility is low .

However, it is important not to forget that the interpretation of Bollinger bands is different depending on the current volatility regime. Therefore, never use them only as an overbought/oversold oscillator. Bollinger bands also provide a way to detect the start of new trends. Just look for an extended low volatility period, with narrowing bands, and wait for a candle closing above or below the bands as they start to expand. Once you identify this pattern, just trade in the direction of the breakout.

When the price continually touches the upper Bollinger Band, it can indicate an overbought signal. In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. You may use it for free, but reuse of this code in a publication is governed by House Rules. HaasOnline does not provide investment or brokerage services. All cryptocurrency spot, margin, and futures products are offered by third-party platforms.

This is a good way to identify short-term shifts in momentum, however, should not be relied upon for longer-term trend readings. Investors can also use Bollinger Band squeezes as a slightly more advanced strategy for trading with the indicator. The Kairi Relative Index is a technical analysis indicator used to indicate potential buy and sell points based on overbought or oversold conditions. A moving average is a technical analysis indicator that helps level price action by filtering out the noise from random price fluctuations. Since Bollinger Bands® are set two use +/- two standard deviations around an SMA, we should expect that approximately 95% of the time, the observed price action will fall within these bands.

Many professional traders that scalp for small profits advise taking profits when the price has touched the SMA instead of waiting for the complete opposite edge. A range is created when the price keeps going up and down inside the same region, creating a level of support below, and a level of resistance above. The default setting for Standard Deviation is 2 in most terminals, meaning the Bollinger Bands width will reflect 2 Standard Deviations from SMA. Changing the deviation to a higher number will widen the Bollinger Bands. This will result in fewer signals, but they will be much stronger. When the price continually touches the upper Bollinger Band, it can indicate an overbought signal while continually touching the lower band indicates an oversold signal.

Bollinger Bands (BB)

We can see that Bitcoin rides the upper bands during a bear market breakout, and rises to a high in April 2021. The strong uptrend reverses temporarily with a bearish candlestick toward the middle band, but doesn’t quite make it. There was another rally head fake to the upper band in mid-November 2021 which presented a potential short-sell setup. An investor or trader would place a stop-loss above the upper band. How narrow or wide the Bollinger Bands are at any given moment can also tell the cryptocurrency trader a lot about what is going on in the market and how volatile the trend is. When the upper and lower bands tighten, it suggests there is a lack of a trend and a low volatility phase.

John Bollinger has many secrets up his sleeve and often will warn when it is time to pay attention. When he calls this out, it is important to watch the way the Bollinger Bands behave and react around price action. The Bollinger Bands on lower time frames can be used effectively for scalping trading systems. Scalping involves getting into a trade and getting out of it practically just as fast, taking profit with steady returns versus big wins. Scalpers can use the Bollinger bounce signal on lower time frames when price is locked in a well-defined trading range.

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  • This is because the vast majority of price action will occur within the bands.
  • The first way traders utilize bollinger bands is to wait for the market to approach the upper or lower bands before taking action.
  • The width of the upper and lower bands indicates volatility.
  • Unlike a percentage calculation from a normal moving average, Bollinger Bands® simply add and subtract a standard deviation calculation.

Another interesting feature of Bollinger bands is that they provide a way to detect, under certain conditions, oversold and overbought areas in relation to the moving average. In particular, when new highs and lows are made outside the bands followed by highs and lows made inside the bands, there’s a high probability that a trend reversal is about to happen. A market is overbought when the price moves above the upper band, while it becomes oversold if it drops below the lower band. When the market is overbought, traders start to look for ways to sell, and they start to look for ways to buy when the market is oversold. The second way traders utilize Bollinger Bands is to trade breakouts.

Which indicator works best with Bollinger Bands?

Both your Stop Loss and Take Profit can be attached to your Buy Order. Even better, you can attach a Trailing Take Profit, for example, 5% below the price, which represents the 20 SMA in the example above. An example of how a range can be traded using Bollinger Bands, below the volume you can see the Bollinger Bands Width indicator. Again, this method is not advised if you are not able to recognize if a market is trending or in a range. The width of the upper and lower bands indicates volatility.

In the cryptocurrency markets, Bollinger Bands, commonly abbreviated to “BBs,” may be used to quantify a coin’s past and present pricing volatility. Structurally, BBs are composed of two trendlines that enclose a simple moving average . Bollinger Bands are a technical analysis tool that traders use to identify developing market opportunities. The moving average of an asset’s price is plotted on a chart, and this line is then bracketed by an upper and a lower line. The Bollinger Bands are an envelope of price action based on a 20-period simple moving average.

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