Bollinger Band Analysis & Bollinger Trading Signals
Developed by John Bollinger
Bollinger Band are formed by 3 lines. Middle line is a Moving Average - 20 period Simple MA.
The lines are then made at a certain distance from the average movement. These lines are what create the top and bottom boundaries.
Bands sit at spots set by standard deviation. This tool measures ups and downs in the bitcoin or BTCUSD market.
BTCUSD market volatility is always changing, so standard deviations shift too. Since Bollinger Bands use standard deviation to set their distance, the bands constantly adjust to match current BTCUSD conditions.
When the btcusd markets become more volatile, the bands widen & they contract during less volatile periods.
The 3 Bands are made to include most of the bitcoin price changes. The middle band is the basis for the market's direction, and it is usually a simple moving average over 20 periods.
This middle band acts as the base for the upper and lower bands. Their distance from the middle depends on market volatility. The upper band sits two standard deviations above the middle Bollinger band. The lower one lies two standard deviations below it.
BTCUSD Analysis & Generating Signals
- Bands provide a relative meaning of high & low
- Used to identify periods of high & low volatility
- Used to identify periods when bitcoin prices are at the extreme regions
the Squeeze
The Bollinger bands tighten as market volatility reduces, this identifies periods of consolidation. Sharp bitcoin price breakouts tend to occur and happen after the bands tighten.
Consolidation Pattern
the Bulge
Bitcoin price breaks band edges. Expect the trend to keep going.
Reversal Signals
Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the market trend
The Head Fake - Bitcoin Whipsaw
Traders should remain vigilant for false breakouts, commonly referred to as whipsaws or head fakes.
Bitcoin Price often breaks-out in one direction immediately following the Squeeze setup causing a lot traders to think the break out will continue in that direction, only to quickly reverse & make the true, more significant breakout in the opposite direction.
Traders who act immediately on an initial breakout frequently find themselves misaligned with the actual direction of Bitcoin's price movement. On the other hand, those ready for a potential 'false breakout' can quickly exit their initial position and re-enter a trade that aligns with the ensuing reversal. To verify such scenarios, combining Bollinger Bands with additional technical indicators is highly recommended.
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