Steemit Crypto Academy Season 2-Week 8 | Cryptocurrency Trading with Bollinger Bands - Homework for @kouba01

What is Bollinger Band

Bollinger Band is a technical analysis tool specified by a series of trendlines plotted two mean and standard deviation (positively and negatively) away from a security's price's simple moving average (SMA) but can be altered to the user's needs.

As @kouba01 explains that Bollinger Bands was invented and trademarked by John Bollinger, a well-known technical trader, to help investors spot possibilities that give them a better chance of correctly detecting whether an asset is oversold or overbought.

Bollinger Bands are usually shown as three lines:
1. Upper Band
2. Simple Moving Average (Middle Band)
3. Lower Band

Key Points
1. Bollinger Bands are a technical analysis technique created by John Bollinger that may use to generate oversold or overbought indications.
2. Bollinger Bands are divided into three lines: An upper and lower band and a simple moving average(SMA) (middle band).
3. Upper and lower bands are usually two standard deviations +/- from a 20-day SMA, but they can change them.

The upper, middle and lower Bollinger Bands are made up of three lines. The center band is a moving average, and the trader determines its settings. On either side of the moving average bar are the upper and lower bands. Bollinger Band is working In the chart shown below.

The trader determines how many standard deviations the volatility indicator should be set. The number of standard deviations determines the distance seen between the middle band and the upper and lower bands. The location of these bands indicates the strength of the trend and the potential high and low price levels to be predicted shortly.

Bollinger Bands can see how powerfully an asset is gaining and when it is likely to reverse or lose momentum. If a rally is strong enough, it will consistently approach the upper band. When an uptrend reaches the top bar, it means the stock is moving higher, and traders can take advantage of the opportunity to buy.

Price pulls back within uptrends, staying above the middle band and moving back to the top bar, indicating a lot of strength. In general, a fee in an uptrend should not hit the lower band, and if it does, it is an indicator that the market is losing strength or is about to reverse.

Calculation

Upper Band = 20 day SMA + (20 day SD of price x 2)
Middle Band = 20 day SMA
Lower Band = 20 day SMA - (20 day SD of price x 2)

here,
SMA= Simple Moving Average
SD= Standard Deviation

Bollinger Bands are consist of a central band and two outer bands. A simple moving average with a period of 20 is used as the middle band. Because the standard deviation formula also uses a simple moving average, a simple moving average is used. The standard deviation has the same look-back duration as the simple moving average. Usually, the outer bands are two standard deviations above and below the central bar.

How Bollinger Band Works

1.The chance of a significant price move in either direction increases when the bands narrow during a period of low volatility. It could be the start of a trend. Keep an eye out for a false move in the different cases that reverse before the true trend starts.

2.Volatility rises when the bands break by an unusually high amount and may also end any existing trend

3.Prices tend to bounce around within the bands' boundary, touching one bar before moving on to the next. These swings can help you discover profit margin objectives; if a price bounces off the lower band and afterward crosses above the moving average, the profit goal shifts to the higher band.

4.During solid trends, the price might overrun or hug a band envelope for extended periods. If your momentum oscillator shows separation, you should do more study to see if taking extra profits is a good idea for you.

5.When the price breaks out of the bands, a significant trend continuing is possible. However, if prices instantly return to within the bar, the implied strength is neutralized.

Best Bollinger Band Setting

Adjusting the setting to suit the features of specific securities or trading methods is possible. Bollinger suggests adjusting the standard deviation multiplier in tiny increments. Changing the moving average's period length impacts the number of periods required to calculate the standard deviation. As a result, only slight changes to the standard deviation multiplier are needed. The number of periods used to calculate the standard deviation would automatically increase the moving average period, as would the standard deviation multiplier The standard deviation multiplier is set to 2 with a 20-day SMA and a 20-day SD. For a 50-period SMA, Bollinger recommends a standard deviation multiplier of 2.1, and for a 10-period SMA, a standard deviation multiplier of 1.9...

Setup in TradingView

To take advantage of the Bollinger band trading strategy, you need to add it to your TradingView. I am using TradingView's official web for this homework.

1. Visit the official TradingView website and select your favorite crypto pair to analyze the chart.

2. Click on the Indication & Strategies button

3. Select Bollinger Band in Built-Ins

It will look like this after applying Bollinger Band.

Bollinger Bands Breakout

The Bollinger Band Breakout Forex Trading Strategy is also an easy-to-understand and uses the trading technique. We are taking advantage of market volatility as well as support and resistance levels in this method. Support and resistance levels provide us with a price structure to focus on to avoid trading anywhere on the chart. We use a price structure rather than a moving average because, in the end, price is what matters.

The Bollinger band will monitor market volatility. When price action tests and a breakout of the upper or lower band occur, we know that increased volatility has entered the market. This volatility breakout can use the trade gold. This type of price activity and market momentum can provide us with a trading advantage.

Bollinger Band with Trend

Mean reversion methods can perform well in range-bound markets, as prices bounce back and forth between the two bands like a bouncing ball. Bollinger Bands, on the other hand, may not always provide reliable buy and sell indications. For example, during a strong trend, the trader risks placing trades on the wrong side of the movement since the indicator can flash overvalued or oversold indications too quickly.

To help with this, a trader can look at the overall price direction and only take trade signals that correspond with the trend. Take short positions only when the upper band is labeled, for example, if the movement is down. If desired, the lower band can be used as an exit, but no new long positions are established because it would be going against the trend.

Best Indicator to use with Bollinger Band

The Bollinger Bands indicator is excellent for detecting value areas on a chart. However, there is a catch: it doesn't tell you if the move is strong or weak. How can you know if the market will continue to trade outside of the outer bands or if it will mean revert, for example? RSi comes into play in this situation where RSI stands for the Relative Strength Index.

It may go one of two ways.

1. When the market achieves a higher high, but the RSI indicator displays a lower high, this is known as a bearish divergence (a sign of weakness)

2. When the market produces a lower low, but the RSI indicator displays a higher low, this is referred to be a bullish divergence (a sign of strength)

If the price is at upper Bands, you can look for a bearish RSI divergence to indicate weakness in the underlying move and vice versa.

Bollinger Bands: Best Timeframe

it is dependent on your trading style and strategy:
1. If you're a day trader, you'll employ the Bollinger Bands on a shorter timescale, such as 15 minutes or 5 minutes.

2. You'll use the Bollinger Bands daily or weekly if you're a swing or positional trader.

ETH/USDT

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Volatility is constantly shifting.

The markets are transitioning from high volatility to a one of low volatility (and vice versa). It can be tough to recognize market volatility if you're a beginning trader. Bollinger Bands can aid in this situation since they contract when volatility is low and increase when volatility is high.

Consider the following scenario:

Conclusion

The 20-period SMA reflects direction, while the upper/lower bands show volatility. As a result, they can be used to judge if prices are high or cheap. Bollinger believes that the bands should include 88-89 percent of price movement, making a move outside of them notable. When prices are above the upper band, they are comparatively high, and when they are below the lower band, they are relatively low. "Relatively high" should not, however, be interpreted as bearish or a sell indication.
Similarly, "relatively low" should not be construed as a bullish or buy indication. There's a reason why prices are high or lower. Bollinger Bands, like other indicators, aren't meant to be considered on their own. For confirmation, chartists should combine Bollinger Bands with fundamental trend analysis and additional indicators.