John Bollinger is one of the most famous financial analysts of the last 40 years.
He developed the “Bollinger Bands” a widely used technical indicator.
Here is my guide to Bollinger Bands and how this tool can help you to gauge a potential market direction.
1/16 🧵👇
He developed the “Bollinger Bands” a widely used technical indicator.
Here is my guide to Bollinger Bands and how this tool can help you to gauge a potential market direction.
1/16 🧵👇
1.
~ Why you might be using it ~
• Have a better outlook on the market.
• Identify potential moves.
• Add another indicator to your setup.
It's important to take note that the BB bands indicator cannot be used alone.
You can see it as a tool to strengthen your analysis.
~ Why you might be using it ~
• Have a better outlook on the market.
• Identify potential moves.
• Add another indicator to your setup.
It's important to take note that the BB bands indicator cannot be used alone.
You can see it as a tool to strengthen your analysis.
2.
~ What is it ~
Bollinger Bands are a volatility index.
They measure the change in prices over a certain period.
Its use does not stop only at analyzing price volatility, but if combined with another indicator we are faced with one of the best trading tools.
~ What is it ~
Bollinger Bands are a volatility index.
They measure the change in prices over a certain period.
Its use does not stop only at analyzing price volatility, but if combined with another indicator we are faced with one of the best trading tools.
3.
This indicator consists of 3 lines:
• Central Line: A 20-period moving average.
• Upper band: Calculated by adding 2 times the Standard Deviation to the Central Line (we will see shortly what it is)
• Lower Band: Calculated by subtracting 2 times the SD from the CL.
This indicator consists of 3 lines:
• Central Line: A 20-period moving average.
• Upper band: Calculated by adding 2 times the Standard Deviation to the Central Line (we will see shortly what it is)
• Lower Band: Calculated by subtracting 2 times the SD from the CL.
4.
~ Standard Deviation ~
SD is the volatility formula: a calculation to find how much the price varies from its average in a certain period.
“Mate, how do I calculate it? It's difficult”
Fortunately, you don't have to.
TradingView and platforms have preset Bollinger Bands.
~ Standard Deviation ~
SD is the volatility formula: a calculation to find how much the price varies from its average in a certain period.
“Mate, how do I calculate it? It's difficult”
Fortunately, you don't have to.
TradingView and platforms have preset Bollinger Bands.
5.
This is how a classic Bollinger Bands indicator presents itself.
The area outside the Upper Bollinger Band and the Lower Bollinger Band is considered as the Overbought and Oversold areas in the RSI indicator and the Stochastic.
This is how a classic Bollinger Bands indicator presents itself.
The area outside the Upper Bollinger Band and the Lower Bollinger Band is considered as the Overbought and Oversold areas in the RSI indicator and the Stochastic.
6.
~ Sell signal ~
We can have a sell signal when:
• Price breaks through the Upper Band ➩ quickly re-enters it with a large red candle ➩ sell.
~ Sell signal ~
We can have a sell signal when:
• Price breaks through the Upper Band ➩ quickly re-enters it with a large red candle ➩ sell.
7.
~ Buy signal ~
We can have a buy signal when:
• Price breaks out of the Lower Band ➩ quickly returns to it with a strong green candle ➩ buy.
~ Buy signal ~
We can have a buy signal when:
• Price breaks out of the Lower Band ➩ quickly returns to it with a strong green candle ➩ buy.
8.
~ Trend continuation ~
When instead of immediately returning within the bands, the price continues a little outside for 2-3 candles, we can have a trend continuation signal.
It's useful to pay attention to future HH + HL pattern formation.
~ Trend continuation ~
When instead of immediately returning within the bands, the price continues a little outside for 2-3 candles, we can have a trend continuation signal.
It's useful to pay attention to future HH + HL pattern formation.
9.
~ Bands squeezing ~
You can use the Bollinger bands squeezing to gauge a potential move.
This occurs when the price has been moving aggressively then starts moving sideways in a consolidation.
Price consolidates âž© bands tightening âž© volatility decreases âž© move incoming.
~ Bands squeezing ~
You can use the Bollinger bands squeezing to gauge a potential move.
This occurs when the price has been moving aggressively then starts moving sideways in a consolidation.
Price consolidates âž© bands tightening âž© volatility decreases âž© move incoming.
10.
~ Risk associated ~
The main risk linked to using BB bands is not considering the market structure.
If the market posture is bearish and you decide to buy the asset when it tags the LB, it could continue to fall for a long time without re-entering the band.
~ Risk associated ~
The main risk linked to using BB bands is not considering the market structure.
If the market posture is bearish and you decide to buy the asset when it tags the LB, it could continue to fall for a long time without re-entering the band.
11.
That's why before taking any positions, making an accurate analysis of the current market structure is key.
Otherwise, the risk of being stucked in an uncomfortable position could drastically increase.
Evaluate the trend âž© use BB âž© decide the trade.
That's why before taking any positions, making an accurate analysis of the current market structure is key.
Otherwise, the risk of being stucked in an uncomfortable position could drastically increase.
Evaluate the trend âž© use BB âž© decide the trade.
12.
~ Recap ~
• Bands tighten during a period of low volatility ➩ likelihood of a sharp price move in either direction.
• Watch out for a false move in opposite direction which reverses before the proper trend begins.
~ Recap ~
• Bands tighten during a period of low volatility ➩ likelihood of a sharp price move in either direction.
• Watch out for a false move in opposite direction which reverses before the proper trend begins.
13.
• Prices have a tendency to bounce within the bands' envelope, touching one band then and the other band.
Use these swings to identify potential profit targets.
Price bounces off the lower band and then crosses above the moving average âž© upper band is your profit target.
• Prices have a tendency to bounce within the bands' envelope, touching one band then and the other band.
Use these swings to identify potential profit targets.
Price bounces off the lower band and then crosses above the moving average âž© upper band is your profit target.
14.
• A strong trend continuation can be expected when the price moves out of the bands.
If prices move immediately back inside the band, then the potential strength is negated.
• Bands separated by a large amount ➩ volatility increases and existing trend may be ending.
• A strong trend continuation can be expected when the price moves out of the bands.
If prices move immediately back inside the band, then the potential strength is negated.
• Bands separated by a large amount ➩ volatility increases and existing trend may be ending.
15.
~ To conclude ~
Remember to not take any actions once the price tags the upper or lower band.
Instead, wait for how the price action and candles develop, taking note of every potential pattern formation.
Your goal is to observe, plan and execute.
~ To conclude ~
Remember to not take any actions once the price tags the upper or lower band.
Instead, wait for how the price action and candles develop, taking note of every potential pattern formation.
Your goal is to observe, plan and execute.
16.
• If you liked this thread, follow me @IamZeroIka for more crypto insights.
• Like and RT the first tweet to support my work!✌️
• If you want to have access to deeper guides and info, subscribe to my FREE newsletter! (link in bio)
• If you liked this thread, follow me @IamZeroIka for more crypto insights.
• Like and RT the first tweet to support my work!✌️
• If you want to have access to deeper guides and info, subscribe to my FREE newsletter! (link in bio)
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