Using Bollinger Bands for Cryptocurrencies — Technical Analysis

May 27, 2019

Building a Strategy for Your Cryptocurrency Trading

The sun indicates morning, the stars night, and the sound of your alarm rings in your responsibilities. Staying on track within the cryptocurrency market also relies on indicators. Such tools have the power to tell us when to buy, why to sell, and at what amounts to enter our trades with. You might, however, be overwhelmed by the many indicators that there are. For a bit of clarity, it helps, after learning and then mastering these tools, to rely on Bollinger Bands.

Here’s an indicator that offers perspective as the markets range, rise, and fall. Just watch a live market to know why. Look closely at each price tick. Your emotions will cling to every price move — if you are human. Separating your ideas from your emotions is done with a bit of help. Bollinger Bands are used when you want more emotional control.

If you’re unfamiliar with Technical Analysis we wrote an in-depth article about how Technical Analysis can Enhance Your Crypto Trading.

Why Bollinger Bands and Not Something Else?

Weight, with its ability to move the market, is what larger investors have. The weight of their decisions, the number of their trades and their insider knowledge give them a power that you and I don’t have. There is, however, a way to shift this dynamic. By using what the bigger investors are using, you can track them — to be more realistic about the trades that you make.

Seasoned investors, those with the leverage to make large changes in the crypto market, use Bollinger Bands to help with their trades. The use of Bollinger Bands creates what many in the market consider to be a self-fulfilling prophecy. With many people relying on this indicator, the result is a more constrained market, which is a good thing. Constrained conditions are stable ones. Controlled markets are also more predictable.

The concept of a “bigger trader” in cryptocurrency, however, isn’t the only reason for using Bollinger Bands. These bands work to contain volatility as we see it visually. When laid out on a price chart, prices will often be contained within Bollinger Bands. This gives your eyes a more stable, conceptual target to work with.

What are the Bollinger Bands? How Do They Work?

Bollinger Bands are three moving averages that are relative to each other. The way they stack on price charts provides you with three lines of historic averages. By portraying these points, a trader can innately create support-and-resistance lines, but these shouldn’t be compared to the lines that you create from trend lines. The price averages are what will set the price levels.

Anytime that prices reach a Bollinger Band, regardless of which of the three moving averages are met, that meeting point is a price that was also met in the past. If those prices meet again, then you can better analyze the current state of supply and demand. Simply ask yourself about what happened when prices had met those points last time. This is how Bollinger Bands effectively create support and resistance lines to work with.

The end result is better anticipation of what prices are likely to do as they rise and fall.

Setting the Bollinger Bands

Modern trading software has been an effective tool for calibrating your indicators with. You’ll first need a trading platform that offers Bollinger Bands to trade with. You’ll then have control over the settings, which can be altered to accommodate your style of trading.

- 20-Point Period Periods represent each unit as based on the time setting of your chart. The centerline of the Bollinger Bands is often set at 20 and as a Simple Moving Average (SMA).

- Deviation of Minus Two You’ll then have to set a deviation from the centerline. Deviation plays off of the original data that was set as your 20-period mark. This minus deviation creates the lower of the three bands that appear on a price chart.

- Deviation of Plus Two This deviation creates a band that’s shown as the higher of the three moving averages. Since it’s a deviation from the centerline, its sensitivity will also relate to core prices, which are those found near the center.

Adjust your data as necessary, and be patient with what you find. Get involved with the strategy of the market around you and learn from it. Put your bands to use, for they’re reliable indicators and can signal the best trades to enter into.

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