If you regularly analyze investment trading techniques, you must have known the term Bollinger Bands indicator, right? However, although you have heard a lot, you may not know how to use it correctly. Refer to the article below by Crypto Trading to know the Best settings for Bollinger bands.
What is Bollinger Band?
Bollinger Bands indicator is a popular choice for many investors in technical analysis. Especially in the forex and crypto markets. This type of line was developed by an investor named John Bollinger in 1983. After that, Bollinger Bands was widely used and became famous after some time. In 2001, he officially registered the trademark for the Bollinger Bands indicator.
The Bollinger Bands indicator is a popular technical analysis tool used to measure the price volatility of an asset. It is made up of three lines:
- Moving Average (MA): This line is calculated by averaging the price over a certain number of price periods (usually 20 days).
- Upper Band: The upper band lies above the moving average at a distance equal to the standard deviation of the price.
- Lower band: Lies below the moving average at a distance equal to the standard deviation of price.
How to install Bollinger Bands indicator quickly
To be able to grasp the Best settings for Bollinger bands, you need to proceed with the installation. Below are 2 installation methods you can refer to:
Install Bollinger Bands indicator on MT4
Install Bollinger Bands indicator on MT4 software in 2 following ways:
Method 1: Go to Navigator -> select Indicators -> click on Trend -> See Bollinger Bands and select it. After selecting, the interface will be displayed as shown below.
Method 2: Also go to Navigator but you choose Insert Tab -> Select Indicators -> Click on Trend -> select Bollinger Bands to get this indicator set up on the chart.
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Install Bollinger Bands on Tradingview
To install the Bollinger Bands indicator on TradingView, follow these steps:
Step 1: Log in to your registered TradingView account now.
Step 2: Open the chart of the asset you want to analyze.
Step 3: Click on the “Indicators” tab.
Step 4: In the search bar, type “Bollinger Bands” or “BB”
Step 5: Select “Bollinger Bands” from the list of results. The “Settings” window of the Bollinger Bands indicator will appear.
Step 6: Adjust the settings to your liking. Common default settings include:
- Number of cycles: 20
- Standard Deviation Type: Simple Standard Deviation
- Standard deviation above 2
- Lower standard deviation: 2
Step 8: Click “Save” to save the settings.
Note: The Bollinger Bands indicator will be displayed directly on the price chart. This type is not like some other indicators such as parabolic SAR indicator, RSI, MACD, and MFI … which will be displayed in the window below. Depending on the aesthetics and experience of the transaction, the color settings as well as the input index for the indicator are different.
The best settings for Bollinger bands are simple
There are quite a few traders and investors who only use Bollinger Bands but not everyone is successful. Below are the 2 Best settings for Bollinger bands you can refer to.
Use Bollinger Bands when the market is trending down or up
The best settings for Bollinger bands when the market is trending down or up are as follows:
For bearish market trend situation:
- Bollinger Bands Narrow: When the Bollinger Bands narrow, this indicates that price volatility is decreasing. This is a sign that the market is at a bottom and may be preparing for a reversal.
- Price touches or crosses the lower band: When the price touches or crosses the lower band, it indicates that the asset may be oversold. This is an opportunity to buy in the hope that the price will rise again.
- Lower Band Breakout: When the price breaks out of the lower band, it may indicate a trend reversal from bearish to bullish.
For bull markets:
- Bollinger band line expanding: When Bollinger expands, it shows that price volatility is increasing. This can be a sign that the market is at the top and is preparing for a correction.
- Price touches or crosses the upper band: When the price touches or crosses the upper band, it indicates that the asset may be overbought. This is an opportunity to sell part of your position to lock in profits.
- Upper Band Breakout: When the price breaks out of the upper band, it can indicate confirmation of an uptrend.
Use the Bollinger Bands indicator when the price is in a phase with no clear trend
When the market is trendless, prices may move within a narrow price range. Bollinger Bands can be useful in identifying these periods and finding potential trading opportunities. Here are some ways to use Bollinger Bands when prices are trendless:
Determine price corridor:
- When the Bollinger Bands narrow, this indicates that price volatility is decreasing. This could be a sign that the market is in a price range.
- The width of the Bollinger Bands can be used to measure price volatility. When the Bollinger Bands are narrow, it may indicate low volatility.
Looking for a breakthrough:
- When the price touches or crosses the upper or lower band of the Bollinger Bands. It may indicate a potential change in trend.
- A breakout of the upper band could indicate a trend reversal from bearish to bullish.
- A breakout of the lower band could indicate a trend reversal from bullish to bearish.
Using other indicators:
- Bollinger Bands indicator should be used in combination with other technical indicators for a more comprehensive analysis. For example, RSI, MA, MACD…
Use Bollinger Bands when moving close together
This movement is a phenomenon when the 2 upper and lower Bollinger Bands move closer together. This shows that the price is in the accumulation or low movement phase. This is the time when the price is accumulating to explode. This shows that the price is about to have strong and rapid fluctuations. In this case, it is necessary to refer to some other indicators. To determine the direction of the upcoming price and have a reasonable trading strategy.
At the moment, many people use the Bollinger Bands indicator bottleneck. This application has many traders with high success rates.
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Notes when using Bollinger Bands most accurately
To use Bollinger Bands you need to keep in mind the following:
Bollinger Bands do not predict future prices: Bollinger Bands only provide information about past and present price movements. They cannot predict how prices will move in the future. Therefore, care should be taken to ensure that the investment transaction process is risk-free.
Bollinger Bands should be used in conjunction with other indicators: Bollinger Bands should be used in conjunction with other technical indicators. At the same time, pay attention to fundamental analysis to get a more comprehensive analysis.
Consult a financial expert: Be sure to consult a financial expert before making any investment decisions. A financial expert can help you understand how to use Bollinger Bands effectively. At the same time, assist in making informed investment decisions.
Conclude
In the above article, Crypto Trading has given you some information about Bollinger Bands. This is a popular technical analysis tool used to measure the price volatility of an asset. However, the Bollinger Bands indicator is not a price prediction tool. Hopefully, after referring to the above information, you can know the Best settings for Bollinger bands. Don’t forget to contact us immediately if you have any questions!
FAQS
Are Bollinger Bands effective?
Bollinger Bands can be a useful tool for traders. But they are not a perfect trading system. They can give false signals and are not effective in all markets.
How does the Bollinger Bands indicator work?
Bollinger Bands are used to measure the price volatility of an asset. When the price moves away from the center line, it indicates that price volatility is increasing. Conversely, when the price moves closer to the center line, it indicates that price volatility is decreasing.
How to use Bollinger Bands for trading?
There are several ways to use Bollinger Bands to trade. Some popular ways include: Buying when the price touches or crosses the lower band, selling when the price touches or crosses the upper band, trading breakouts…
