Would you like to get stronger returns on your investments? If so, Bollinger Bands might be of interest to you.
<p>Bollinger Bands were created by John Bollinger, and in his <a href="https://steemit.com/bollingerbands/@dmschultzy/bollinger-bands-and-bitcoin">newsletter</a>, he described how useful they can be when trading with bitcoin:</p>
"Bitcoin is a terrific vehicle for Bollinger Band trading. That shouldn't come as a surprise as we have long known that Bollinger Bands are well suited for forex in general, and Bitcoin is really nothing more than a specialized form of forex."
Bollinger claims he used this indicator to successfully predict three important bitcoin events - one bottom and two tops.
<h2>How Are Bollinger Bands Used?</h2>
To create a Bollinger Band, you first need to plot bitcoin's simple moving average (SMA). You then create a band above and below that line, by calculating standard deviations above and below bitcoin's SMA.
<p>The<a href="https://www.cryptocompare.com/exchanges/guides/how-to-trade-bitcoin-and-other-crypto-currencies-using-bollinger-bands/"> set period </a>for this study is articulated from an actual Bollinger Band. For example, a Bollinger Band 30 would have a 30-day time frame.</p>
<p>Let's take a look at some of the advantages of Bollinger Bands.</p>
<h2>When Bitcoin is Overbought Or Oversold</h2>
Bollinger Bands can be used to determine if bitcoin is being overbought or oversold. A lot of the time, bitcoin will go up and down within these bands.
<p>If bitcoin's price drops below the bands, it shows the currency breaking lower, and as a result, it might be oversold. This might represent a good time to buy bitcoin.</p>
<p>If the price of bitcoin goes over the upper band, this shows it as breaking higher and could result in the currency being overbought. If the price continues to rise, it could represent a good time to wait and increase your profit.</p>
<p>In saying that, if you come to the conclusion that bitcoin is, in fact, being overbought, it might be a great opportunity to cash in. It might be a good idea to use extra <a href="https://www.bitcoinmarketjournal.com/bitcoin-technical-analysis/">technical indicators </a>before making a decision, however.</p>
Help Predict Volatility
Bollinger Bands can also help predict volatility. This can be useful because, often times, low volatility will make way for high volatility, and vice versa.
<p>When bitcoin goes through a period of high volatility, it represents a good time to invest. Similarly, when bitcoin's volatility drops, there are fewer opportunities to gain profits.</p>
<p>So, if the two bands are not very far apart, it can mean an increase in volatility is on the cards. In addition, if the bands are far apart, you can presume a drop in volatility in the not so distant future.</p>
<h2>What To Keep In Mind</h2>
There are strong advantages to using Bollinger Bands. However, you must remember that they only represent one indicator. Because of this, it might be best to combine them with other technical indicators, as mentioned.
<p>This was also strongly <a href="https://www.investopedia.com/terms/b/bollingerbands.asp">advised</a> by Bollinger when he urged traders to combine other indicators with Bollinger Bands. See our articles on <a href="https://www.bitcoinmarketjournal.com/bitcoin-technical-indicators/">Bitcoin Technical Indicators</a> and <a href="https://www.bitcoinmarketjournal.com/bitcoin-technical-analysis/">Bitcoin Technical Analysis</a> to learn more. While you're there, take a moment to <a href="https://mediashower.com/ce2/66062/2052/10622" onmouseout="window.status='';" onmouseover="window.status='https://www.bitcoinmarketjournal.com/subscribe/';return true;">sign up for the Bitcoin Market Journal investor newsletter</a> and get investing news delivered weekly right to your email inbox! </p>