When you trade cryptocurrencies like Ethereum, you can use Bollinger bands to increase your probability of being profitable. Read Ethereum code review to know how to use these bands to trade technically.
The indicator is used to generate trading strategies and you should know the art of how to use them when you trade cryptocurrencies using technical charts. There are many trading strategies that are used using Bollinger bands. However, make sure that you use the one that matches your trading profile the best.
These bands were created by John Bollinger and some traders will tell you that they trade only using the bands which gives them a lot of success. The bands are used in order to capture the price movement of the security. It gives you a boundary of what the high and the low of the security will be. The indicator is based on moving averages that define the trend of the asset based on which time frame you are trading on.
The trend indicator, Bollinger band uses a 20-period moving average mostly. This is the default setting in most cases. The band has an upper and lower band and this helps to measure volatility. The upper and the lower band are two standard deviations from the middle band.
This simple calculation will let you know how the trend indicator is formed.
The upper band = middle band + 2 standard deviations
Middle band = 20 periods moving average
Lower band = middle band – 2 standard deviations
Strategies used to trade Bollinger bands
The pattern formations like the double top and double bottom, symmetric and ascending triangles and head and shoulder pattern formations are commonly used. The Bollinger band lets you assess the strength that these chart patterns have.
The bands are used to understand if the security is in a strong trend or if it is volatile for you to invest in. When the band is very tight this will indicate that the security is trading in a very narrow range. When the band starts to coil this is when you should look for a breakout or a breakdown. This narrow ranging may just be a calm before the storm is formed.
In order to use this trend indicator, you should know about it thoroughly and have a better understanding of how to use it. You could then use it with some advanced techniques to generate more profitable trading signals.