How Bollinger Band Bitcoin Indicator Works
Bollinger Band cryptocurrency indicator calculations uses standard deviations to draw the bands, the default value used is 2.
Bollinger Band Calculation
middle Bollinger band indicator line is a simple MA
The upper band indicator is: Middle line + Standard Deviation
The lower Bollinger band indicator is: Middle line - Standard Deviation
Bollinger Band indicator considers the best default moving average MA to calculate the Bollingers to be 20 price periods moving average MA and the bands are then overlaid on the chart bitcoin price action.
Standard Deviation is a statistics concept. It originates from the theory notion of normal distribution. One standard deviation away from the mean average either plus or minus, will enclose 67.5 % of all bitcoin price action movement. Two standard deviations away from the mean average either plus or minus, will enclose 95 % of all bitcoin price action movement.
This is why the Bollinger Band cryptocurrency indicator uses standard deviation of 2 which will enclose 95 % of all bitcoin price action. Only 5 % of chart bitcoin price action will be outside the 3 bitcoin trading bollinger bands, this is why bitcoin traders open or close trades when bitcoin price hits one of the outer Bollinger Bands.
The Bollinger Band cryptocurrency indicator main function is to measure bitcoin price action volatility. What the Bollinger bands upper and lower limits try to do is to confine bitcoin price action of up to 95 percent of the possible closing bitcoin prices.
Bollinger Band cryptocurrency indicator compares the current closing bitcoin price with the moving average of the closing bitcoin trading price. The difference between these 2 bitcoin trading prices is the volatility of the current bitcoin price compared to the moving average. The bitcoin price volatility will increase or decrease the standard deviations of the bollinger bands bitcoin technical indicator.
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