Get to Know if Bitcoin Trading is Overbought or Oversold using Bollinger Bands

Check Today's Crypto Market:

Bittime - Bollinger Bands are a useful tool that traders use to get a clear picture when the markets are going up, stabilizing, or correcting.

The Art of Trading

Trading isn't a precise science or art. It's a mix of both. There are lots of indicators available 

publicly and each claims to be great. But none of them are flawless or meant to be used alone.

Bollinger Bands

One of the most popular indicators among traders is Bollinger Bands, which can help identify price peaks, lows, and opportunities to sell during overextended rallies and buy during sharp pullbacks.

Let's Learn Three Simple Ways To Use Bollinger Bands Indicator In Trading

What are Bollinger Bands?

John Bollinger invented and copyrighted Bollinger Bands in the 1980s. The indicator includes a middle band, which is a simple moving average set at 20 periods by default, and two outer bands set at two standard deviations below and above the middle band.

Its main purpose is to determine if the price is high or low relative to historical data. If the price is above the upper band, the asset is considered overbought. Conversely, if the price falls below the lower band, the asset is seen as oversold.

However, many traders mistakenly believe that the price will drop when it reaches the upper band, or that a rally will begin when the price hits the lower band.

This usually only occurs when the price is stuck in a range. Just like any other indicator, assumptions can lead to big losses in a trending market, so it's wise to look for confirmation from multiple indicators.

Also read:

Let's explore a few ways traders utilize Bollinger Bands.

Bollinger Bands Can Detect Volatility Squeezes

According to John Bollinger, assets move between periods of low volatility and high volatility. So, after low volatility periods, traders may expect volatility to increase, potentially leading to strong moves in one direction.

The chart above shows how XRP's volatility dropped sharply from mid-February to mid-March 2023. After about two months of low volatility, the volatility spiked, presenting a good trading opportunity.

In another example, Binance Coin (BNB) was in a downtrend, and volatility tightened from the early of August to mid-August 2023. Here, volatility expanded downward, confirming the downtrend.

However, a volatility squeeze doesn't predict the direction of the next move. Sometimes, market makers push the price above the upper band or below the lower band to trap novice traders. Therefore, traders may avoid predicting the direction and wait for a breakout before taking a position.

Bollinger Bands Can Indicate When To Buy During A Pullback

During an uptrend, pullbacks often present buying opportunities as the main trend usually resumes. When the middle band slopes upward and the price trades between the middle and upper bands, it indicates an uptrend. Traders may wait for a bounce off the middle band to enter long positions.

Key points

Bollinger Bands can help identify trends early by detecting volatility squeezes. They can also indicate buying opportunities during pullbacks in an uptrend. Additionally, Bollinger Bands can be useful for trading strong trends with shallow corrections.

There are many ways to use Bollinger Bands, and this article covers only just a few.

How To Buy Crypto From Bittime

You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Learn How to Buy Crypto on Bittime.

Monitor price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

Read also:

How to Do Bitcoin Trading in Times of Downturn

This Signal Could Be The Sign of Bitcoin Price Reversal

The Classic Pattern of Bitcoin Price Reversal

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.