What are Bollinger Bands?
Famous technical trader John Bollinger came up with the concept of Bollinger Bands in order to assess how volatile (unstable in terms of price) is a coin at a given point in time.
A Bollinger band represents the plotted 2 standard deviations away from a simple moving average.
Standard deviation is used by traders in order to assess the volatility of a coin.
- When the markets are volatile and the coin sees noticeable differences in price over a short period, the bands will be wider
- When the markets are stable and the coin sees little change in price, the bands will be narrower
Volatility can be both a good and a bad thing: if you are the one taking advantage of it, it means that volatility can bring you great profits; however, the flip side is that you can also make great losses.
TECHNICAL ANALYSIS: How to use Bollinger Bands to assess volatility on Coinigy
Posted by Doctor Crypto on Wednesday, 29 November 2017
In the video, wherever the distance between the top yellow line and the bottom yellow line is wide, that means that the Bollinger bands are wide and the price is very volatile. Conversely, when the distance between the 2 yellow lines is narrow, that means that price is fairly stable.
Whenever the candles get out of the area defined between the 2 yellow lines, that is a strong sign of volatility. So if the candles go above the top yellow line, the volatility is translated as people overbuying the coin. If the candles go below the bottom yellow line, the coin is volatile because a lot of people sell it. But remember, what goes up must come down and what comes down must go up, so this could represent either a great time to sell or a great time to buy.