Bollinger Bands

Bollinger Bands are a volatility indicator consisting of a middle band representing a simple moving average (typically 20-period) with two outer bands positioned at standard deviations above and below that average. The distance between the bands expands during periods of high volatility and contracts during quiet market periods, providing visual representation of price volatility levels. Traders interpret price touches of the upper band as potential sell signals and touches of the lower band as potential buy signals, while the bands themselves act as dynamic support and resistance levels that adapt to changing market conditions. Example: During the 2022 crypto winter, Bitcoin's price repeatedly bounced within Bollinger Bands, allowing traders who set buy orders at the lower band and sell orders at the upper band to profit from mean reversion trades as volatility fluctuated. Why it matters for crypto technical analysis: Bollinger Bands combine trend, support-resistance, and volatility information in a single visual indicator, enabling traders to identify price extremes and adjust their risk management strategies based on real-time market volatility levels.

Category: technical analysis

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