Bollinger Bands are a technical analysis indicator that is developed by John Bollinger. It is useful for finding overbought/oversold areas and also helps traders to identify the market volatility. It is commonly used as a reversion to the mean indicator. Bollinger Bands are formed from 3 “bands” where: The Middle band is a Simple Moving Average (SMA). The period for the SMA is usually set to 20 (meaning it is the average price over 20 candles). Bollinger Bands (BB) are a widely popular technical analysis instrument created by John Bollinger in the early ’s. Bollinger Bands consist of a band of three lines .
Bollinger bands bitcoin tradingBollinger Bands (BB) — Technical Indicators — TradingView
Strategy 5 — Snap back to the middle band, will work in very strong markets. I have been a breakout trader for years and let me tell you that most breakouts fail. Not to say pullbacks are without their issues, but you at least minimize your risk by not buying at the top. Shifting gears to strategy 6 — Trade Inside the Bands, this approach will work well in sideways markets. Because you are not asking much from the market in terms of price movement.
From my personal experience of placing thousands of trades, the more profit you search for in the market, the less likely you will be right.
I was reading an article on Forbes, and it highlighted six volatile swings of bitcoin starting from November through March So, I wanted to do my research, and I looked at the most recent price swings of Bitcoin in the Tradingsim platform. During this period, Bitcoin ran from a low of 12, to a high of 16, I am getting a little older now and hopefully a little wiser, and that kind of money that fast, I have learned is almost impossible for me to grasp.
The psychological warfare of the highs and the lows become unmanageable. So, it got me thinking, would applying bands to a chart of bitcoin futures have helped with making the right trade?
I indicated on the chart where bitcoin closed outside of the bands as a possible turning point for both the rally and the selloff. You must honestly ask yourself will you have the discipline to make split-second decisions to time this trade, just right? I honestly find it hard to determine when bitcoin is going to take a turn looking at the bands.
Bitcoin is just illustrating the harsh reality when trading volatile cryptocurrencies that there is no room for error. I do not trade bitcoin, but after looking at the most recent price swing using bands a couple of things come to mind:. Pairing the Bollinger Band width indicator with Bollinger Bands is like combining the perfect red wine and meat combo you can find. In the previous section, we talked about staying away from changing the settings. Well, if you think about it, your entire reasoning for changing the settings in the first place is in hopes of identifying how a security is likely to move based on its volatility.
A much easier way of doing this is to use the Bollinger Bands width. In short, the BB width indicator measures the spread of the bands to the moving average to gauge the volatility of a stock.
Well, now you have an actual reading of the volatility of a security, you can then look back over months or years to see if there are any repeatable patterns of how price reacts when it hits extremes. Look at the below screenshot using both the Bollinger Bands and Bollinger Bandwidth. Notice how the Bollinger Bands width tested the. The other point of note is that on each prior test, the high of the indicator made a new high, which implied the volatility was expanding after each quiet period.
As a trader, you need to separate the idea of a low reading with the Bollinger Bands width indicator with the decrease in price. If you had just looked at the bands, it would be nearly impossible to know that a pending move was coming.
You would have no way of knowing that. The above chart is of the E-Mini Futures. I want to dig into the E-Mini because the rule of thumb is that the smart money will move the futures market which in turn drives the cash market.
Looking at the chart of the E-mini futures, the peak candle was completely inside of the bands. Other than the fact the E-mini was riding the bands for months, how would you have known there was a big break coming? Remember in Chapter 4, the Bollinger Bandwidth can give an early indication of a pending move as volatility increases. In the above example, the volatility of the E-Mini had two breakouts prior to price peaking. After these early indications, the price went on to make a sharp move lower and the Bollinger Band width value spiked.
The inspiration for this section is from the movie Teenage Mutant Ninja Turtles, where Michelangelo gets super excited about a slice of pizza and compares it to a funny video of a cat playing chopsticks with chopsticks. Does anything jump out that would lead you to believe an expanse in volatility is likely to occur?
Let me tell you when you are trading in real-time, the last thing you want to do is come late to a party. More times than not, you will be the one left on cleanup after everyone else has had their fun.
It was very subtle, but you can see how the bands were coiling tighter and tighter from September through December. During this time, the VIXY respected the middle band. There was one period in late November when the candlesticks slightly jumped over the middle line, but the candles were red and immediately rolled over. However, in late January, you can see the candlesticks not only closed above the middle line but also started to print green candles.
That is a fair statement. You would need a trained eye and have a good handle with market breadth indicators to know that this was the start of something real. There is the obvious climactic volume which jumps off the chart, but there was a slight pickup in late January, which was another indicator that the smart money was starting to cash in profits before the start of spring break.
This gives you an idea of what topics related to bands are important to other traders according to Google. Why is this important? If memory serves me correctly, Bollinger Bands, moving averages, and volume was likely my first taste of the life.
Well as of today, I no longer use bands in my trading. Therefore, the more signals on the chart, the more likely I am to act in response to said signal. This is where the bands expose my trading flaw.
For example, if a stock explodes above the bands, what do you think is running through my mind? You guessed right, sell!
The stock could just be starting its glorious move to the heavens, but I am unable to mentally handle the move because all I can think about is the stock needs to come back inside of the bands.
Instead of taking the time to practice, I was determined to turn a profit immediately and was testing out different ideas. I decided to scalp trade. I would sell every time the price hit the top bands and buy when it hit the lower band. From what I remember, I tried this technique for about a week, and at the end of this test, I had made Tradestation rich with commissions.
The key flaw in my approach is that I did not combine bands with any other indicator. This left me putting on so many trades that at the end day, my head was spinning. At the end of the day, bands are a means for measuring volatility.
Just as you need to learn specific price patterns, you also need to find out how bands respond to certain price movements. This level of mastery only comes from placing hundreds, if not thousands of trades in the same market. The books I did find were written by unknown authors and honestly, have less material than what I have composed in this article. The other hint that made me think these authors were not legit is their lack of the registered trademark symbol after the Bollinger Bands title, which is required by John for anything published related to Bollinger Bands.
Conversely, when I search on Elliott Wave, I find a host of books and studies both on the web and in the Amazon store. I am still unsure what this means exactly. With there being millions of retail traders in the world, I have to believe there are a few that are crushing the market using Bollinger Bands. I just struggled to find any real thought leaders outside of John. I write this not to discredit or credit trading with bands, just to inform you of how bands are perceived in the trading community.
Bollinger Bands work well on all time frames. Remember, price action performs the same, just the size of the moves are different.
Without a doubt, the best market for Bollinger Bands is Forex. Currencies tend to move in a methodical fashion allowing you to measure the bands and size up the trade effectively. Next, I would rank futures because again you can begin to master the movement of a particular contract. Last on the list would be equities. The captain obvious reason for this one is due to the unlimited trading opportunities you have at your fingertips. You will need to do the following to take your Bollinger Bands trading strategies to the next level:.
I hope you have enjoyed reading this article. As he wrote in his newsletter:. Using this indicator, the technical analyst claims to have successfully predicted three pivotal events for bitcoin — one bottom and two tops. The period of time studied is articulated in the Bollinger Band itself, so a Bollinger Band 21 would be based on a day time frame. There are several ways you can use Bollinger Bands to your advantage. For starters, you can use them to get a better sense of when bitcoin is either overbought or oversold.
For the most part, bitcoin will fluctuate between the bands. In this case, you may decide that it is a good time to purchase bitcoin. However, should you conclude that bitcoin is indeed overbought, it may be a great time to sell. Before you rely on Bollinger Bands to make any transactions, it can be quite helpful to use additional technical indicators for confirmation.
Another use case for Bollinger Bands is predicting volatility. What is your opinion about Bollinger Bands? How useful do you find it in analysing crypto?
BulloTaurus , It can be used as an extra tool on the longer timeframes in my opinion. I hardly ever use them because we have so many tools already But here they help give additional info on the monthly. BulloTaurus alanmasters.