Trading is a complex matter, just like a woman. It's hard to understand and it's hard to predict the next price movements just like how woman behave. You think she's fine but the next minute she's not, in trading you think it will rise so you buy but it goes down after you bought. Isn't it complicated right?
Bollinger Band is one of my favorite indicator for spot trading, if you know I used different indicators in leverage trading as well as the time frame.
I used Bollinger Band For A Short Term Trade
Bollinger Band indicator was created by John Bollinger. The indicator consist with a moving average and two bands above and below. Bollinger Band used add and subtract in a standard deviation calculation.
This standard deviation is used to measure the volatility of price that shows how it varies from it's true value. To measure the volatility, Bollinger Bands expand themselves with the current market conditions.
How to understand the Basics of Bollinger Bands?
There are basic things you need to understand how to use the Bollinger Bands indicators. I like this indicator because you don't need to plot drawings just to predict where the market is heading. No more complicated drawings that sometimes give us headaches to understand, especially if you are new in trading.
Bollinger Band indicator is consistent of three lines, the middle is the centerline which is called EMA (Exponential Moving Average) while the two lines is the Upper and lower band.
Spotting resistance zone using Bollinger Bands
Bollinger Bands is an all around indicators to me as I used to spot resistance on it.
The upper band will be the resistance zone, you can easily draw horizontal line on it.
Candlestick will only keep bouncing on the upper band. When it creates new resistance prize zone it will rise above the upper band or it breaks out from the old resistance zone. It means that the price pumps hard making the candlestick rise above the upper band.
Spotting support zone using Bollinger Bands
Opposite to the upper band, lower band works as the support zone. It's easy to spot the support price zone using the lower band.
If the coin had a massive sell off, the candlestick stick will fall lower in the lower band. The lower band act as support zone if the price breaks out the candle forms below it means it breaks the old support zone.
Spotting Downtrend and Uptrend using Bollinger Bands
As I said Bollinger Bands is all around indicator, it can also spot the down trend and uptrend movement of the price. It will tell you where the price heading.
Uptrend price movements (bullish)
When the candlestick is trading above the centerline (EMA) or middle band it means that the price movements is in uptrend or bullish. If it falls below the middle band that's the bearish break out or price trend reversal.
Downtrend movements (bearish)
When I he candlesticks is trading below the centerline (EMA) or middle band it means that the price trends is down or bearish. When the candlestick breaks above the centerline it means that the price starting to be bullish and already changing direction or reversal.
Measuring price volatility
Bollinger band can also measure price volatility if it has significant pump and dump depending on how band showing.
Expanded bands
When upper band and lower band are expanding wider from, it means that the price volatility and the price surge and dump is huge. There is significant or big movements in the price.
Compressed or tight bands
When the band are compressed, tight or close with each other it means that the volatility of the price is not that massive. The price action doesn't have any big significant movements as of the moment. Even if the candlestick is already trading above the centerline, when the bands are compressed it means no big price surge yet.
Oversold and overbought
When candlestick keeps bouncing or above the upper band it means that it's already overbought, while if the price keeps bouncing or below the lower band it means it's already oversold.
Is it reliable to used Bollinger Bands alone?
Using one indicator is not reliable although bollinger bands is all around to me I still used other indicators such as RSI and MACD.
Bollinger Band is effective when combined with other indicators. If you want to know what's the perfect combi of it, then DYOR :))
All images used are mine and it is in 1D TF except the first, it's in 4hr tf.
Closing Thoughts
Indicators are there to help traders determine the market movements but it cannot guarantee that we can predict the price accurately like 100%. Just like the last market crashed last May 19, 2021, although I know how to read some indicators, it didn't save me from getting stuck on my short term trade as I was asleep when it happens HAHAHA!
If you want to have 100% zero losses of trading, you should be awake 24/7 and watch the chart all the time 😂
I hope you learn something from my favorite indicator, Bollinger Bands!
Thank you for reading!
P.S I am still working part 3 of my noise.cash guide in tagalog version, I'll publish it once I'm done.
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Date Published: September 3, 2021
Great job on this! I like the fact that you were able to explain the Bollinger Bands so thoroughly and make them easy to understand. I wish I was finding articles like this when I was teaching myself TA.
This is some excellent advice for anyone who hates the messy charts, or someone who doesn't have a lot free time to learn all of the ins and outs of technical analysis. It's kinda like a swiss army knife of your trading toolbox. Just like a mechanic has tools , these are our tools. No one likes a messy toolbox of useless tools. You can get rid of a lot of clutter using the Bollinger Bands in combination with the RSI.
To be honest, if you are risking your hard earned money on any investment, you should understand how it's price action works in the different market conditions. Sometimes I see charts from these so called professionals that have so many lines and colors it makes you dizzy. I also see a lot of people with more money than brains. They will just throw money into a project and then go around all the subreddits asking if it's a good investment, smh.
Oh, and I use the Bollinger Bands to look for possible entry and exit points too. If you combine them with multi timeframe analysis, you can go into the lower timeframes, and find the best spot to enter and exit your trade for maximum return. You want the most distance between where you enter & exit.
One more tip, lol. What you said about overbought/ oversold is on point too. One thing I have noticed is that once a candlestick closes above the top Bollinger Band it's usually a sign of exhaustion and the price is going to possibly roll back over & return to the middle line ( MA ) . Its attracted to it like a magnet.
To me, this is what a quality article looks like. These are the articles that should be getting the huge BCH tips because you are teaching people to be self sufficient, and you are able to do it without making it over complicated. Some people are good at that. Thank goodness for them, Could you imagine me trying to write this. I can't even leave a simple reply on the subject without writing a book, hahaha.