Crypto Academy Season 2: Week 8 || Homework post for @kouba01||

2개월 전

Hi everyone and welcome to my homework post for Professor @kouba01 who has delivered an excellent lecture about Bollinger Bands.


Define the Bollinger Bands indicator by explaining its calculation method, how does it work? and what is the best Bollinger Band setup?


Bollinger Bands is an indicator which is used to predict the volatility level in an asset price. It was invented by John Bollinger in 1980s. Bollinger Bands indicator is applied on candlestick chart that helps in predicting the reversal and continuation of a pattern.

It basically uses Moving average but there are also upper and lower limits and the price usually moves between these limit lines.

1. Middle line. Simple Moving Average of 20 is used in this indicator that is calculated by adding last 20 candlesticks closing price and then it is divided by 20 and in this way moving average is taken. It is the middle line of this Bollinger Bands indicator.

2. Upper Line. Then there is upper limit and it is also 20 moving average of close + 2 standard deviations. So this formula is used to take values of upper limit. So formula will be {MOV20+(2 x 20Standard Deviation of Close)}

3. Lower Line. Lower line is used as the lower limit in this indicator. It is also calculated by taking 20 Moving Average of close - 2 Standard deviations. So, the formula will be {MOV20-(2 x 20Standard Deviation of Close)}.

How it works.


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Bollinger Bands

Bollinger Bands indicator can be used in any time frame and it depends upon the trader which time frame he uses according to his trading strategy. When the bands squeeze, it shows less volatility and there is not much happening in the market. As the volatility rises, the bands starts to wide and it signals increase in the volatility.



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Bollinger Bands Volatility

When the price touches the upper line, it is expected that a reversal is imminent and the market can go downwards. Likewise when price touches the lower line, a reversal is expected and price is expected to move upward.

When the bands are moving upward, it clearly shows that there is an uptrend in the price of asset. On the other hand, when the bands are moving down, it shows the downward trend in the market.

Middle line also act as support and resistance for trading purpose. When the market is below the middle line of this indicator, it will act as Resistance and when the market is above the middle line and candlesticks are being formed above this middle line, then it will act as Support.

Bollinger Bands indicator also helps in indicating Oversold situation of the market. When the price touches the lower limit of the indicator, it can be expected that the market is Oversold and it can move upwards very soon.

Similarly, this indicator can also help in indicating Overbought situation of the market. When market touches the upper line of this indicator, it is expected that the market is overbought and it can move downwards very soon.


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Overbought and Oversold


Trend Reversal can also be found with the use of Bollinger Bands indicator. When the market breaks out to any side and the next candlestick is opposite to the first candlestick and it comes back into the bands or near the bands, it indicates a reversal in the market.


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Trend Reversal


What is a breakout and how do you determine it? (Screenshot required)


Most of the time, when the market squeezes, there is a chance of breakout in the market. This breakout can happen on news too. When any important news breaks out suddenly, it has a sudden effect on the market too.

On Bollinger Bands, when the bands shrinks and get close to each other, it shows there is very low volatility in the market and traders are not trading right now. Very few traders are trading. On the other hand, this situation is an indication of breakout and on this indicator, candlesticks are formed outside the bands. If the market breaks out to the down side, then the bearish candlestick will form outside the lower band and when the market breaks out to upwards, then bullish candlestick will form outside the upper band or upper limit of this indicator.


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Bullish Breakout

In the above screenshot, it can be seen that before breakout, there was very low volatility in the market, and then suddenly breakout happened in the market, and a Bullish candle was formed outside the upper band of the indicator and then some more candlesticks also formed outside the upper band and uptrend continued afterwards.

Same is the case with Bearish breakout that is given in the below screenshot.


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Bearish Breakout

It can be seen in the screenshot that breakout happened after low volatility and then another candle was formed outside the lower band. After that bearing trend continued.


How to use Bollinger bands with a trending market? (screenshot required)


In trending market, Bollinger Bands indicator is also very helpful. Whether it is uptrend or downtrend, one can benefit from this indicator.

When market is in uptrend, the bands will move upwards and the middle line can act as dynamic support line, and whenever market comes to the middle line and price action signal is created, a trader can buy the asset at that price and when the market touches the upper band, he can exit the market.


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Moreover, when the market is Oversold in uptrend, one can expect tha market to bounce back and a buy entry can be taken.


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In the same way, in downwards trending market, the middle line can act as dynamic resistance where the market can bounce back and a trader can go short on any price action signal. In this way Bollinger Bands indicator can help traders to benefit from trading. Overbought signal can also help in taking trade and traders can go short on these prices.


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What is the best indicator to use with Bollinger Bands to make your trade more meaningful? (Screenshot required)


Bollinger Bands indicator can be used with any other indicator. In my view, Support and Resistance is the best and it can help in making trade more meaningful. Support and Resistance levels are quite important to use when analyzing market as well as entering trades.

When combined with Bollinger Bands indicator, Support and Resistance levels can become more meaningful.


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In the above screenshot, one can see how Support and Resistance Levels have been accurate alongwith Bollinger Bands indicator. When the market goes overbought, it has also touched Resistance level, and it indicates an opportunity to go short.

On the other hand, when market has gone oversold, it has also touched the Support level and it is the best time to buy steem.


What timeframe does the Bollinger Bands work best on?And why? (Screenshots required)


It depends upon the type of trader or what strategy a trader is adopting. If a trader is a day trader, he will surely use short time frames.

Long term traders use Daily, Weekly or Monthly timeframe. It can give good results on any time frame.

I am a holder and I will prefer Daily time frame. Moreover, daily timeframe gives proper time to understand the market movement. Long term trading requires bigger time frames to better analyze the market. I have circled the timeframe option. From this option, time frame can be changed easily.


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Review the chart of any pair and present the various signals giving by the indicator Bollinger Bands. (Screenshot required)



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Above is the screenshot of BTCUSD pair and I have mentioned different trades with circles. Red circles are for sell entry and Green circles are for Buy entry. I have also mentioned these points with text. When the market is overbought, there it gives sell signal, and whenever market is Oversold, it gives indication of Buy entry.

Conclusion.

Bollinger Bands indicator is very useful for technical analysis. No Indicator is 100% accurate, same rule also apply with this indicator. But when used in combination with some other indicator, it can give very good results.

However traders should use proper stoploss while trading and stick fast to the money management strategy.

Thanks in anticipation.

Regards,
@mawattoo8

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Hello @mawattoo8,
Thank you for participating in the 8th Week Crypto Course in its second season and for your efforts to complete the suggested tasks, you deserve a 7/10 rating, according to the following scale:

OriginalityCompliance with topicConsistency of methodQuality of analysisClarity of structure & language
(1/2)
(1.5/2)
(1.5/2)
(1/2)
(2/2)

My review :

Bollinger Bands indicator can be used with any other indicator. In my view, Support and Resistance is the best and it can help in making trade more meaningful.

  • Usually when we say indicator we mean one of the common technical analysis indicators such as RSI, MACD, Ichimoku, ..., but the combination with resistance and support levels can also be useful.

Good content, in general, in which you tried to get as close as possible to the correct answer, and I was mostly satisfied with it, and you lacked depth in the analysis of some other of them. The last question requires more display of the signals and tracking of the price movement of the pair.

Thanks again for your effort, and we look forward to reading your next work.
Sincerely,@kouba01