Popular Trading Indicators and Proper Ways To Use Them : Bollinger Bands

There is huge amount of indicators in the market but the few very popular and older indicators still are the all time favourites of traders, especially the technical analysers. It's good to introduce yourself with those indicators if you're looking to get involved in crypto or any sort of trading and also familiarise yourself how to use them properly. So in this article we will see one of such indicators Bollinger Bands, in easy to understand manner.

So let's dive in....!!

Bollinger Bands

About Indicator

It was first created by the John Bollinger in 1980s and was named after its creator. Bollinger Bands are used by technical analyst to determine the volatility of the market and the oversold or overbought conditions. This indicator is so useful that almost every second trader has it in their strategy.

The Bollinger Bands consists following three inputs.

1) Upper Band: The upper band is the highest point of the band, generally calculated as, 20-day SMA + (20-day standard deviation ×2)

2) MA Line: This is the middle line between two extreme bands, called moving average line. This is calculated by 20-day SMA

3) Lower Band: This is the lowest point of the band, it is calculated as, 20-day SMA - (20-day standard deviation ×2)

[Note 1: SMA = Simple Moving Average

Note 2: Calculations aren't necessary here, they're just for extra knowledge, so don't get confused, if you don't get it skip it!!]

These are the general settings used for Bollinger Bands, with this default setup almost 85% of the time, price of an asset moves between upper and lower band. But this setup can be adjusted according to your own strategy.

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What Does BB Indicates and how to look for those indication?

So now we have understood the basics of Bollinger bands, so now let's talk about the real stuff, how to use them and get indication from it to use in our trading.

1) BB Tightening (Contraction): If the Bollinger Bands gets tighten that means if upper and lower bands come closer to each other during low volatility then, it is an indication that the sharp price movement in either direction. (Watch for the false movements in opposite directions of actual trend)

2) Unusual Gap (Expansion): When there's sudden or say unusual gap between upper and lower band then it is may be an indication of end of an ongoing trend.

3) Band Hug: If the price exceeds the band for a reasonable time then it is an indication of strong trend movement. You should think about increasing your take profit limit price. This action of price exceeding band is also know as Band hugging.

I guess this is already more than enough for the introduction of Bollinger Bands, hope you've understood it and will practice it on TradingView charts.

Hope you guys find this article informative and learned something from it. For my future articles related to crypto, blockchain and trading follow me @Ashma so you guys can get notified.

Here's the quiz on Bollinger Bands,

https://www.surveymonkey.com/r/2Z2BC89

make sure you read the article properly before responding to quiz.