Bollinger Bands: What are they and how do they work?
As a beginner in the crypto world, I learn and share what I discover every day. Although itโs not always easy, I keep trying. Today, I want to talk about Bollinger Bands, a key tool in trading used to analyze the volatility of prices of a crypto or financial asset. They help traders anticipate whether the price of an asset might go up, down, or remain stable.
๐ How do they work?
Bollinger Bands consist of three main lines:
โ Moving Average (middle line): Represents the average price of an asset over a certain period (usually 20 days).
โ Upper Band: Located two standard deviations above the moving average.
โ Lower Band: Located two standard deviations below the moving average.
๐ How to interpret them?
๐ธ If the bands expand โ Indicates greater price volatility.
๐ธ If the bands contract โ Decreases volatility, which could signal a trend change.
๐ธ If the price touches the upper band โ It may be overbought, that is, at a high price.
๐ธ If the price touches the lower band โ It may be oversold, that is, at a low price.
๐ Basic strategy with Bollinger Bands
Many investors take advantage of moments when the bands contract to anticipate a strong price movement. Some buy when the price touches the lower band and sell when it touches the upper band, although each trader has their own strategy.
๐ข Have you used Bollinger Bands in your trading strategy? What experiences have you had?
I still get confused with this indicator.