June 13th Chart Decoder Series: Bollinger Bands – How to Replace Volatility Like a Pro
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Welcome to the Chart Decoder series. Here we analyze the technical charting tools provided by Bitfinex.
So far, we’ve explained:
Next, let’s dive in Bollinger Banda flexible tool that helps traders read volatility and find extreme prices.
What is a Bollinger Band?
The Bollinger Band consists of three lines.
- Middle band: Simple moving average (SMA) for 20 periods
- Upper band:SMA + 2 standard deviation
- The lower band:SMA – 2 standard deviations
They grow and contract based on market volatility.
When the band is far away: high volatility
When they get tight: low volatility (and often there’s a big move)
How to use:
- Prices exceed the upper band
This often indicates the terms of purchase. Short-term pullbacks or inversions may continue, but strong momentum can further drive profits. - Prices fall below the lower band
This could indicate a sold out condition. Bounce is possible, but it is best to check with additional indicators such as RSI and volume. - Prices move closely along the upper band
Known as “Walking the Band,” this usually reflects a strong trend. It can last, but traders need to closely monitor momentum. - The band is signed largely
The pressure suggests that the market is in a low volatility stage. These periods often precede sharp breakouts in either direction. - The band begins to expand
Indicates an increase in volatility. The market may be moving into a more active phase due to larger price fluctuations.
Examples of behavior:
Break down what appears on Bitfinex’s 1 hour BTC/USD chart and use Bollinger Bands (BB 20, 2) as the main indicator.
- Current price: 105100
- Middle Bollinger Band (20 SMA): 104978
- Upper band: 105619
- Lower Band: 104337
In this example, the BTC sits just above the middle band, showing tentative signs of strength. This is often a neutral to fierce zone, with prices deciding whether you want to move for a while or hang out sideways.
What’s interesting is that there was a Bollinger band. Wideerreflecting some sharp movements (clearly visible in recent dips and spikes). But now they are Start a contractsuggests that there may be a market in it Integration phase.
What could happen next?
- A bullish scenario:
When you see the BTC can hold on top of the central band and some powerful candles push high, Upper band (~105619) It’s highly likely. A clean break above can indicate an incoming breakout (look at the volume). If prices rise without strong participation, it could just be a fake. - Bearish scenario:
If BTC slides back under the central band and picks up a red candle with volume, you can revisit Lower Band (~104337) immediately. This keeps BTC on a short-term downtrend channel. - Lateral drift:
Most likely scenario for now: integration. A slight tightening of the band suggests a reduced volatility. This means that while the trader is waiting for a macro catalyst, BTC can only extend between the middle/lower bands.
Bollinger Bands work best when used Confirmation indicator. If you’re serious about taking a more confident catching breakouts and reversals, try combining this as follows:
- rsi Check for excessive purchases/overselling
- volume For verification of strength
- Candlestick pattern Near the band of the entry signal
BTC/USD update with RSI + Bollinger Band
Current RSI (14): 51.47
This makes us right Neutral Zone Between overbuying (70) and overselling (30). There’s no clear momentum yet…
- The RSI has been slowly climbing from its recent lows and has broken over 50.
- This can be seen sometimes Short-term momentum shiftthe bear has lost control and the bull is intervening carefully.
Now, the chart says: From neutral to hope. The BTC has been raging from recent lows, and the RSI has been fine-tuned towards bullish territory. A game that is still waiting.
Pro tips:
- use Bollinger Band with RSI or MACD Check the signal
- Do not assume all touch=inversion in the band. Context is important
- Bollinger Band’s “Squeeze” followed by a powerful movement
- Please be careful Price – Band divergence. This is when prices start to rise again, but the band is not expanding. This means that the trend may be losing strength and a reversal or slowing may be approaching.
Try Bollinger Bands with Bitfinex:
- Log in to Bitfinex
- Open the trading pair chart
- Add a Bollinger Band from the indicator menu
- Look for a price that will break the band, a tight squeeze, or a strong trend “walking band”
Next chart decoder series: Fibonacci Level – How to find natural price targets used in both professionals and algorithms.
Bitfinex. Original Bitcoin exchange.
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