Crypto Trading With Bollinger Bands Indicator (Part 2)

It's day 2 of our tutorial on the topic Crypto Trading With Bollinger Bands Indicator, if you have missed part 1 of the course please visit the Link. I'm sure that will give you the basis and the foundation of the entire course. I hope you will find it interesting.

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In part 1 of this course, we discuss a few things which include, the history of the Bollinger Bands indicator, and Bollinger Bands indicator Calculation and we also shared some screenshots to serve as a guide for both new and old traders.

Indicators are always pretty when it comes to identifying the regions of overbought or oversold regions. This is because it helps the trader to take a profit and minimize losses.

Overbought using Bollinger Bands indicator

As we all know, an asset is said to be in its overbought region when it has reached its highest peak during a given movement and that leads to a trend reversal in the opposite direction. To identify the overbought region using the Bollinger Bands indicator, you will notice the candle charts of the asset moving above the upper band line.

When such a situation is noticed, it is recommended that the traders at this point start selling their assets out because it has reached their peak and the next thing will be that the price will reverse. So traders found in the market at this time should place a sell order.

Oversold using Bollinger Bands indicator

Similarly, as we all know, an asset is said to be in its Oversold region when it has reached its lowest peak during a given movement and that leads to a trend reversal in the opposite direction. To identify the Oversold region using the Bollinger Bands indicator, you will notice the candle charts of the asset moving below the lower band line.

When such a situation is noticed, it is recommended that the traders at this point start buying their assets because it has reached their peak and the next thing will be that the price will reverse. So traders found in the market at this time should place a buy order.

Market trends can also be easily identified with the Bollinger Bands indicator. Recall that we have 3 types of trends in technical analysis i.e. the uptrend, downtrend, and sideways movement. Most people are only aware of the uptrend and the downtrend.

From the Bollinger Bands indicator, in the case of an uptrend, you will notice the price and the bands moving in an upward direction. This is what we call the bullish phase of the market. This is a period where more buyers are seen in the market.

Using the candle stick chart, you will notice that you have more green candles 🕯️ in place during this movement. It continues moving upward until it meets its peak which will later cause a reversal. During this movement traders who continue to occupy the market are the buyers.

Similarly from the Bollinger Bands indicator, in the case of a downtrend, you will notice the price and the bands moving in a downward direction. This is what we call the bearish phase of the market. This is a period where more sellers are seen in the market.

Using the candle stick chart, you will notice that you have more red candles 🕯️ in place during this movement. It continues moving downward until it meets its limit which will later cause a reversal. During this movement traders who continue to occupy the market are the sellers.

The reason for educating us today about the identification of oversold and overbought regions as well as the market trend using the Bollinger Bands indicator is not far-fetched. Without a prepared understanding of this indicator, one may not be able to minimize loss and maximize profit.

Once you can be able to identify this using the indicator, you can easily know when to enter and also when to exit the market. This will help you to make a good profit from your trade. So every trader whether new or old who tends to use the Bollinger Bands indicator should have this basic knowledge.

Bollinger Bands indicator is indeed a very beautiful indicator that can be used by almost every trader. It is easy to use as it is self-explanatory. Recall it has 3 different lines i.e. the upper band line, the moving average line, and the lower band line. When the price chart is seen above the upper band line we call that overbought region and when the price is seen below the lower band line we call it oversold.

Material Resource

Note: All screenshots are mine taken from the TradingView website

Disclaimer: _{This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.}