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Bollinger bands: what it is and how it works

The price comes out of the upper Bollinger band when coin trading is common, but you may not know how to react. This article will provide some perspectives for your reference when trading cryptocurrencies.

What are Bollinger Bands?

The Bollinger band is an indicator commonly used in technical analysis. This tool combines the moving average indicator (the moving average – shows the average value of the price over a period of time) and the standard deviation.

The Bollinger band indicator is often used to measure price fluctuations. By following this indicator, you will know if the market is fluctuating strongly or slowing down.

The structure of the Bollinger band indicator:

The Bollinger band indicator includes 3 lines:

  • The MA20 is in the middle, most commonly used by many traders. You can choose the MA period as you like.
  • The upper band is the standard deviation of +2% from the mean MA.
  • The lower band is a standard deviation of -2% from central Alzheimer’s disease.

What does the price coming out of bollinger’s top band mean?

The Bollinger band indicator is designed to fluctuate usually between the upper and lower bands. When the 2 bands of the Bollinger band shrink, it means that the market is slowing down. Traders have to wait for stronger buyers or sellers.

  • If the price then goes from the bottom up to the top edge, the bulls are stronger. Prices tend to rise.
  • Conversely, if prices fall below the MA after the two bands narrow, moving to the bottom edge, it means that the sellers are stronger. The downward trend is winning.

When the two bands of Bollinger bands shrink, and then there is a clearer trend, the price often comes out of the band in a stronger direction. After that, the border will widen, and the price will also be corrected to enter the border at once.

According to the indicator’s algorithm, the price that enters the band after exiting the upper Bollinger band is because the Bollinger band will open after a strong oscillation. But there is also another reason, which is because of the psychology of the market. When there is a spike in trading levels, many traders will take profits or slow down the trade, causing a price correction after a sharp fluctuation. Then correct before continuing the trend. This is a common situation in the cryptocurrency market.

Since the price usually moves between the 2 bands, when the price exits the upper Bollinger band, it means that the price of the coin is in a strong upward trend and, soon, it will correct again so that the price enters the Bollinger band.

How to Apply Bollinger Band Indicator to Find Trading Opportunities

Find trading opportunities using Bollinger’s band indicator

Trade Bollinger bands when the market is lateral (laterally)

When the Bollinger gang shrinks, it means that the price is moving sideways and there is a tug-of-war between buyers and sellers. Right now, the price will continually run back and forth between the two borders. Some traders often place a BUY order when the price hits the lower band of the Bollinger band and take profits when the price touches the upper band of the Bollinger band.

Trade Bollinger bands in a trendy market

When the 3 lines of the Bollinger band point upwards and the price is above the MA20, it means that the market is in an upward trend and you can place a buy order. After each price correction, a red candle appears, then a green candle returns, forming a new fund, placing a stop loss below the new fund.

Conversely, when the 3 lines of the Bollinger band point down, the price cuts the MA20 from above and fluctuates in the area below the MA20, which means that the market is on a downward trend and you can place a sell order.

How to trade when the price comes out of the upper bollinger band

In a situation where the price exits the upper Bollinger band, if you have already entered a trade-in time, traders often apply the strategy:

  • Take partial profits when the price comes out of the upper band.
  • Or increase the stop loss at the price of the MA line to preserve profits.

If you have never entered the order of trading coins before, you should not rush to immediately enter the order when you encounter this situation.

  • You should place an order only after the price has been corrected and after the green candle appears again.
  • Place the newly created stop loss at the bottom to limit the risk when the price does not go in the desired direction.

We do not encourage you to use short sell orders (Sell) when trading and in particular we should only trade buy orders when the price of the coin is in an upward trend.

How to Enable Bollinger Band Indicator to Trade Coins on Binance

To enable bollinger’s bandwidth indicator, you need to go to your Binance account. If you do not have an account, please register by following the link below:

After logging into your account, click [Trade] on the toolbar and select [Classic] or [Advanced]

Select the coin pair you want to see the chart:

Click the [Technical Indicator] symbol to select the indicator you want to use:

Click [BOLL], enter the MA point in the [Length] box, enter the standard deviation in the [Multiplier] box. Usually, traders use MA20 and a standard deviation of 2%.

Choose a color for the edges and click [Save].

Conclusion: the price comes out of the upper bollinger band

So you have successfully activated the Bollinger band on Binance and learned how to trade with this indicator. The rest is that you need to practice trading and apply it correctly for each case. In addition, to increase your chances of success in trading, you need to learn other price analysis techniques or learn how to combine other indicators when trading.

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