Hey Buddy, how loaded is your crypto trading toolbox? By tool I mean, Technical indicators you know how to use. The more you have, the more options and strategies of entering and exiting the market.
In this article I will be reminding you what Bollinger Band is and how to enter or trade crypto market using Bollinger band strategies.
What is Bollinger Bands?
Bollinger Band is an indicator developed by John Bollinger. And it is majorly used to measure the market’s VOLATILITY and identify overbought and oversold conditions.
Usually represented by BOL or BB.
Bollinger Band tells you two things. Viz;
- When the market is QUIET and LOUD.
- What happens in these conditions?
- Quiet, the bands contract.
- Loud, the bands expand.
Features of Bollinger Band
- Upper band or line: Acts as resistance level. When the candle breaks out of it, it becomes a support.
- Middle line: Serves as both support and resistance depending on whether the candle is above or below it.
- Lower band or line. Serves as a support level
When to buy and sell using Bollinger Bands
- When the Candlestick touches or passes through the lower band or line, get ready to Go Long (buy).
- When the Candlestick touches or passes through the upper line or band, get ready to Go Short (Sell).
TIP: Always use other indicators and candle patterns before making your decision.
How do you trade using Bollinger Band?
This is where the strategies come in. I will be walking you through two strategies Bollinger Bands can be used for.
Trading strategies of Bollinger Bands
Strategy #1: Bollinger Bounce
Bounce simply means when something goes up and down. The idea behind Bollinger bounce is that, the price (of the particular coin you are using it for) tend to return to the middle of the band i.e the middle line. The bands act like support and resistance levels.
Time frame vs Bollinger Bands
The longer the timeframe, the stronger the bands tend to be. I hope you have not forgotten about Top-Down Analysis.
What type of trends works better with Bollinger Bounce?
Bollinger Bounce is best used when the market is ranging i.e ranging trend. Kindly revisit lesson on Trends and types of trends in cryptocurrency market.
WARNING: Avoid trading the market when the bands are expanding, because this usually denotes that price is not moving within a range but in a trend.
Instead, look for stable or contracting bands.
Strategy #2: Bollinger Squeeze
When the bands squeeze it means that a breakout is ready to happen.
- If the candle starts to breakout above the top band, the move will usually go up. The continuation depends on the candle patterns.
- If the candle starts to breakout below the bottom band, price usually continue to go down. The continuation also depends on the candle patterns.
Take note of the word, USUALLY. It means, sometimes the breakouts may be false. To confirm, wait for the next candle that will form and close.
Bollinger Squeeze will help you catch a move as early possible.
Mind you, don’t expect this to happen every day but expect it to happen.
Bollinger Band and Candlestick patterns
When you are using Bollinger Band to either enter or exit the market, always remember to take note of the candlestick patterns forming at the top and lower bands.
Do you still remember the major candle patterns and what they mean? Click here to revisit the lesson on candlestick patterns.
Can I use BB alone to make my decision?
Did you just ask that? No, you can’t. You can’t make your entry or exit decision based on Bollinger bands alone. Make use of other indicators to finalize your decision.
Over to you,
Now that you have better understanding of how to use Bollinger Band, go ahead to practice on your trading chart and make it an important tool in your trading arsenal. The more you practice it, the better you become.
If you have any question, kindly drop in the comment section.