Understanding Bollinger Bands

26th January 2022

Bollinger bands, have you heard of them? It may sound daunting, but it is not anything special. In the 1980s, the term Bollinger came after the originator of this technical indicator, John Bollinger. This indication is one of the most basic technical indicators used by both novices and pros in trading. Traders use it to determine an asset’s trading range quickly. It is similar to a rubber that compresses and expands, and it goes hand in hand with volatility.


Bollinger bands indicator applies to any time frame. Its purpose is to display the price on the chart as high or low on a relative basis. It has three bands: one in the middle and two on the outside. A moving average with a period of 20 serves as the middle band. Because the moving average is based on the standard deviation formula, traders employ it. The two bands located above and below the middle bands are also set to standard deviations.


The Bollinger bands indicator is a simple way to determine asset volatility. When volatility is high, it expands; bands move down or up automatically. When volatility is low, however, there is a contraction. When a crypto price movement is within the higher bands, it shows strength. It also displays weakness when the price is in the lower bands. In other words, we may claim that we are in an uptrend when the price is above the middle bands. If it is below the middle bands, though, it is in a downtrend.


However, if the bands break outside the lower or higher bonds (and the price is already outside the bonds), the price movement is deemed parabolic and can continue in the breakout direction. Even if the price action exceeds the upper bands, this does not necessarily indicate the best time to buy crypto. It is not possible to go short when the price surpasses the lower bands, just as it is not possible to go long when the price exceeds the upper bands. It is still dependent on several things. Like other indications, you cannot rely on them as a stand-alone tool. Other technical indicators and chart analysis will need to back it up.


Bollinger bands have a variety of applications, but only two are common. Both ends of the upper and lower bands serve as support and resistance. There is a chance that the price movement will bounce down if it stays within the upper bands. Similarly, when the price action reaches the very end of the lower bands, there is a chance it will bounce even higher. You can check the Bitcoin Pro website to get more information.


It could also herald the start of a breakthrough. Price movement could likely go for a breakout after the price breaches the ceiling or floor that is blocking it, just like support and resistance (you may read the explanation of Coindesk about support and resistance if you have forgotten it). Price action that exceeds the top of the upper Bollinger bands can result in a higher breakout. Other traders had figured out how to ride it. Similarly, if a break out occurs below the bottom bars, a slump is conceivable.


And, as with every other signal, there is no guarantee. Experts feel that one must put a protective stop not too far with the entry points. Remmber that if you know how to play the game and have enough knowledge and expertise with the crypto market, a simple indicator might help you become a profitable trader.


For traders who do not know how to play with some indicators yet, seeking professional assistance from experienced brokers is the solution. They often go to platforms like Bitcoin Pro. Bitcoin Pro has industry professionals who have all been through the field in some way. The page has compiled a few tidbits of information for those not yet fully immersed in the Bitcoin universe. On their page, you may learn more about Bitcoin, including what it is, how it is made, and how it is traded. They also have a frequently asked questions section where they answer some of the most often asked questions from people just like you.