To put it bluntly, the 7-day line looks at the short-term rise and fall 'momentum', while the Bollinger bands look at the 'position' of the price in the current range. Combining the two can help filter out many ineffective signals and avoid pitfalls.
First, understand the core functions of the two tools.
- The 7-day line: A 'barometer' of short-term trends. If the price is above the 7-day line, it indicates a strong short-term trend; if it drops below the 7-day line, the short-term trend may weaken.
- The Bollinger bands: A 'framework' for price fluctuations. It includes the upper band (short-term high), middle band (middle position), and lower band (short-term low), allowing you to see whether the price is at a high, middle, or low position.
Practical pairing: When to buy? When to sell?
1. When to buy: The 7-day line stabilizes + price is near the lower Bollinger band
For example, a certain coin (taking 'X coin' as an example) has been falling, with the price staying below the 7-day line for a long time. One day, it suddenly rises above the 7-day line and closes without dropping back down. At this time, looking at the Bollinger bands, the price happens to be near the lower band.
Why can we buy at this time?
- Stabilizing above the 7-day line: The short-term upward momentum has just started, and the trend has improved;
- At the lower band: This indicates that the drop has reached its limit, with support below, and it's hard to fall further.
When the two signals align, it's like 'double insurance'. For example, if X coin bounces from the lower band while also stabilizing above the 7-day line, this is the time to enter the market with low cost and high safety.
2. Conditions for adding positions: The 7-day line is trending up + price is between the middle and upper Bollinger bands.
After buying, if the 7-day line continues to rise (indicating the upward trend hasn't stopped), and the price is fluctuating between the middle and upper Bollinger bands (indicating it's not at the peak yet and has room to rise), this is the time to add to your position.
For example, if the price pulls back near the 7-day line but doesn't break it, and is also above the middle band, it's like a car steadily climbing a slope without reaching the top. At this time, adding to your position can help you earn more.
3. When to sell: Dropping below the 7-day line + simultaneously dropping below the middle Bollinger band.
If the price suddenly drops below the 7-day line and closes without recovering, while also breaking the middle band, don't hesitate, sell quickly.
Why?
- Dropping below the 7-day line: The short-term upward momentum has stalled, and the trend has weakened;
- Breaking the middle band: The mid-term support is gone, and it may continue to fall.
If both signals are bad, holding on makes it easy to incur more losses. For example, if you bought at 10 yuan and it drops to 9 yuan while simultaneously breaking the 7-day line and the middle band, selling at this time can help you lose less.
4. Beware of 'false signals'.
- Don't chase: The price is above the 7-day line but just touches the upper Bollinger band. The upper band is a short-term high, and reaching this point easily gets 'knocked down', which might be a trap to lure buyers.
- Don't rush to cut losses: The price breaks below the 7-day line but is just near the lower Bollinger band. The lower band has support, and it might be a deliberate market shake to scare you; wait for two days, there might be a rebound.
Summary: In simple terms.
The 7-day line looks at 'momentum' (strong or weak), while the Bollinger bands look at 'position' (high or low).
- Buy: Look for improved momentum (stabilizing above the 7-day line) + low position (near the lower band);
- Sell: Weakening momentum (dropping below the 7-day line) + breaking position (below the middle band).
Having two signals aligning before taking action is much more reliable than looking at a single indicator!
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