Technical Analysis for Crypto Trading: Bollinger Bands in depth

Technical Analysis for Crypto Trading: Bollinger Bands in depth


 

In this article I hope to educate you on how I use Bollinger Bands and what they are used for

If you have not seen my first post which summarizes all the indicators I use to track my crypto assets please check that out with this link. I have also posted my other indicator posts on my blog so check those out as well.

I know a lot of people love to HODL but here I teach swing trading which will generally have you hold a position from a few weeks to a few months and try and save you from huge downtrends in the market.

 

What are Bollinger Bands?

Bollinger Bands are a way of checking for how over extended an asset is and tell us the safe range that our asset can trade in.

ETH chart with Bollinger Bands

Here is a price chart of Ether with Bollinger Bands located on the main chart. The two red bands that grow and contract are the upper and  lower bands of the 15.2 Daily Bollinger Bands and the red dotted line in the middle of them is the 15 day Simple Moving Average.

 

How is it calculated?

Feel free to skip this part if you do not care about the math behind it but I believe its always important to know the math behind what we use.

To calculate the value of our 15.2 Bollinger Bands we have to get the values of the 15 day Simple Moving Average. Then we take price change over those same 15 days and we take the standard deviation of those values. For example if the 15 day SMA had a value of 100 and the standard deviation over the past 15 days was 5, then for the 15.2 Bollinger Bands we would take 2 standard deviations above and below the 15 day SMA to have the upper band be 110 and the lower band be 90. For a little more help understanding Bollinger Bands try this link: Bollinger Bands.

 

Get these charts for yourself

These charts I show on this blog are generated for free from stockcharts.com. These charts are fully customizable and have way more than just Bitcoin and Ether. To see the full list of cryptos that this site includes then see this link. If you want the exact chart that I use for Ether then feel free to use this link here. I am not sponsored by this site, it's just a decent free technical analysis site and if you find a better one to use then all the stuff I teach is still valid there.

 

Entry and Exit Points (how we use it)

The most clear entry points using Bollinger Bands is to enter a position when the price drops below the bottom Bollinger Band and then bounces back up inside the bands. This is called a Bollinger Band Bounce.

ETH chart with Bollinger Bands

Taking a look again at ETH we can see that this occurred very recently on Sept 20. You see that the price of the position drops below the red band and then starts to rise back up to a safer level. 

In my opinion, Bollinger Bands are not the best for telling you when to enter, but for telling you when to reduce position or be on guard. Look on Sep 2 when the price went out side of the upper band. What followed was an insane drop off that would have hurt to stay through. If you would have seen the price above the upper band you could have reduced your position to save yourself. Another time recently where this happened is Oct 15. The price went above the bands and now is starting to drop off slightly. 

It's important to note that it's more important for the price to close outside the bands, than it is to just pop out for a minute. You can see this on the chart where the right facing flag is on each bar. For example on Jul 27 the price does not close outside the bands but on Aug 8 it does. The price doesn't have to drop fast like it did in September but could just slow down greatly like it did in August. The most recent drop has me concerned but not willing to sell completely out.

Wrap up

I'm glad you stuck around to get to the bottom here and I hope you learned something about how to use Bollinger Bands. Since this is an in depth post about Bollinger Bands if you have any questions please comment on this post and I'll do my best to answer.

I also use Stochastics, Moving Averages, and the MACD to help me time my trades but to put them all on this post would be too much. I have made posts for the rest of these already on my blog so you can check those out.

In the near future I plan on posting more frequently with updates on how specific cryptos are doing, which ones are breaking out, and which ones are starting to break down as well so that I can provide the research for you as well as keep putting these indicators to the test.

*for possible legal reasons I will say that this is not financial advice and is to be seen as educational only*

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MichaelTheCryptoGuy
MichaelTheCryptoGuy

Trying to Educate others about crypto while learning for myself.


CryptoWealthBlog
CryptoWealthBlog

Teaching you how to use technical analysis to time the crypto market and how secure your financial future with crypto currency.

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