Crypto Academy season 2 week 8 - Homework Post for @kouba01| Cryptocurrency Trading with Bollinger Bands

Define the Bollinger Bands indicator by explaining its calculation method, how does it work? and what is the best Bollinger Band setup?

Bollinger bands were developed in the 1980s by a man named John Bollinger
Bollinger bands are a very common instrument used in the financial markets. They work on the two standard deviation phenomenon where the average price is right in the middle of the bell curve with two standard deviations at the extremes and as a general rule most pricing falls within this range.
Bollinger bands consists of three lines
The upper line or band, the middle line which is basically a moving average. This allows for customization of periods. A moving average measures the movement of prices over a particular period

Moving average = sum of prices over a particular number of days / number of days

Hence a higher period would be used for long term trade and likewise a lower period for short term and finally the lower line or band as indicated below.

_{Illustration of the Bollinger band}

The band represents two volatility lines around the (default) 20 day moving average.
The idea behind the bands is to illustrate how prices are dispersed around an average value and the use of the two standard deviation is to ensure that 95% of price occurrences or movements remain within the bands.

best Bollinger band set-up

I'm going to head over to trading view to show how to configure the bollinge bands to the chart

• Firstly, head over to trading view
  *Navigate to the section fx located at the center top of the trade interface as marked below
  *Search for and select Bollinger bands in the built in's section and click to incorporate to chart

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*Afterwards click on setting to customize Bollinger settings



These are the default Bollinger settings which include a length of 20 and a standard deviation of 2 with a close source.
We can also customize or change the lengths (periods) either from the default 20 to the popular 50 or 10 but in doing so we'll have to alter the standard deviations put in places. For example the use of the length period 50 should be used with the 2.5 standard deviations while a length period of 10 needs a standard deviation of 1.5

What is a breakout and how do you determine it?

A breakout occurs when a candlestick or candlestick dips below or extends above (closes) the Bollinger bands

Bollinger bands, consisting of moving averages lines could be used for myriad purposes from the determination of market trends to volatility measurement. Typically, because they're based on price volatility, they won't stay a constant difference from the moving average hence if volatility drops the Bollinger band would get tighter because they're based upon what price has done over the last twenty days (by default) subsequently if volatility of market movement gets bigger the Bollinger bands would widen.
There are basically two types of breakouts

*The first one occurs when the candlestick closes or breaks out of the upper bands as illustrated in the chart above

• Similar to but in contrast with the first one, the second type occurs when price exceeds or breaks below the lower bands

How to use Bollinger bands with a trending market?

Bollinger band is a very helpful indicator and can be used to enter trades both in a uptrend or downtrend market situation. Identifying a trend doesn't necessarily mean jumping into a trade. In any market the determination of the right entry and exit positions is key.

A trending market basically means a clearly defined trend. A market might either be in an uptrend or downtrend and these trends can be capitalized upon using the Bollinger bands. . The Bollinger bands helps in displaying good entry positions.
When the trend is an uptrend or a overbought market, it's best to watch out for price actions when the candlesticks are at their peak, either touching the upper part of the Bollinger bands or closing above it. It indicates an overbought market and would most often be followed by a reversal in a concise market where price aims for the middle line.

Similarly as the goal is to accumulate profit by buying low and selling high. In a downtrend, with the Bollinger bands, watch out for when the market becomes oversold
So with the use of our default Bollinger bands settings with a period of 20 and a standard deviation of 2 as illustrated in the charts below.

One thing to note is that a market would always often experience corrections, no lasting trend is 100% pure. In an uptrend market as illustrated, watch out for these corrections.

In the chart, the market is in a clearly defined uptrend but during it's correction the price touched the lower band (oversold zone) of the Bollinger, this action coupled with the market trend and the fact that the candlestick touched a supply zone where price has been rejected thrice indicates a reversal is bound to happen and as such that would have been a good place to open a buy position with risk management strategies applied and TP set at the middle line for a safe trade

What is the best indicator to use with Bollinger Bands to make your trade more meaningful? (Screenshot required

With respect to subsequent lectures delivered by the professor in this lecture. I'd say a oscillator or momentum Indicator like an RSI indicator would work very fine with the Bollinger bands. The oversold and overbought conditions could be confirmed with the use of the RSI. The Bollinger bands does more of displaying a market trend than showing market movements so with the use of the RSI we get an overview of price actions and ups and downs in the market which helps confirm trades as indicated below.

In the chart pair (BTC/USDT) above, we notice the Bollinger bands majorly centers on displaying market value and trend position. In comparison with the RSI indicator, prices have formed a series of higher highs but the RSI indicator displays a higher low

What timeframe does the Bollinger Bands work best on?And why?

I don't believe such things as "best timeframes" exist. It's all dependent on trade style a trader chooses to inculcate. Considering the two most popular kinds of trading "day trading and scalp trading". Day traders would want to use the Bollinger bands with a lower period as their positions are opened and exited within a day while scalp traders might make use of an higher period, weekly or monthly with the Bollinger bands as it best suits their trade style.

Review the chart of any pair and present the various signals giving by the indicator Bollinger Bands

For this analysis I've chosen the chart pair of LTC/USDT (Litecoin/Tetherus)

In the chart pair above, I've integrated the Bollinger bands and the RSI indicator.

I've marked the points where price touched above the bands indicating an overbought conditions which is then confirmed with the use of the RSI. We notice how market plunged down afterwards at these points.

The ltc/USDT market is currently at a major zone which has acted as both a demand and supply zone(or support and resistance) in price history. We notice the uptrend is over as the series of higher highs has been interrupted by a higher low and to confirm this the RSI indicator has plunged below the 50 zone. The Bollinger bands are tightening and the MA indicator or middle band is indicating a trend reversal hence there's a strong probability the market would break below the zone drawn, retest and continue the downtrend.

As a swing trader I'll wait for the price to break below support and retest the zone before entering a trade.
There are many other trade indicators in the chart but that would only be making use of the concepts of support and resistance and a few of them with Bollinger bands