The Bollinger Bands indicator is an oscillator meaning that it operates between or within a set range of numbers or parameters. As previously mentioned, the standard parameters for Bollinger Bands are a 20 day period with standard deviations 2 steps away from price above and below the SMA line.
Essentially Bollinger Bands are a way to measure and visualize volatility. As volatility increases, the wider the bands become. Likewise, as volatility decreases, the gap between bands narrows.
What to Look for?
The bands must be thought of as a high and a low points, if the prices cross above the top band it means the asset is overbought and the opposite would indicate an oversold market.
Volatility is to be seen as a cycle, there are periods of expansion and contractions, which indicates high and low volatility markets respectively.
Have a look at some relevant coverage:
- Major Terms to Know for Technical Analysis of Cryptocurrencies
- Tips For Beginner Day Trader In Cryptocurrencies
- Read The Guide on Relative Strength Index (RSI)
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