The Bollinger Bands, or BB, were developed during the 1980s by financial analyst and trader John Bollinger. From that point forward, numerous traders and chartists have been involving the BB as a technical analysis (TA) indicator.
Basically, the Bollinger Bands function as a measurement device of market motions. Thusly, the BB indicator can be utilized to recognize the minutes that a specific market presents high or low volatility. Likewise, they can be valuable for spotting potential overbought or oversold market conditions.
The BB indicator comprises of two sidelong bands and a middle line. These three components demonstrate how prices more around an average value, which is addressed by the middle band. The upper and lower bands extend when market volatility is high, and contract when market volatility is low. They either create some distance from the middle band (high volatility) or towards it (low volatility).
The Bollinger Bands are among the most utilized TA indicators, particularly in traditional financial markets. In any case, they are likewise utilized by cryptocurrency traders. In any case, BB ought not be utilized as an independent device yet rather related to other TA instruments and indicators, to diminish the overall risks.
There are a couple of essential approaches to perusing and deciphering the data given by the BB indicator.
For example, envision that the price of an asset moves from below the middle line as far as possible up to the upper band, outperforming it. This would show a potential overbought condition. A similar perusing logic applies to the contrary side. On the off chance that an asset's price surpasses the lower band, it could be indicative of oversold conditions. The upper and lower bands may likewise propose potential support and resistance levels, in which the price is probably going to bounce.
Other than that, the movement of the upper and lower bands comparable to the middle line is a vital factor of the BB indicator. The expansion and contraction of the bands might come convenient when traders and chartists are attempting to foresee the next periods of market volatility (or lack thereof).
For instance, assuming the volatility begins expanding, the bands will extend and get away from the middle line. Interestingly, if the market volatility diminishes, the bands will contract and move towards the middle.
For a more top to bottom clarification of Bollinger Bands, see our article: Bollinger Bands Explained