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John Bollinger invented the Bollinger bands in the 1980s, and they have since gained enormous popularity for precisely highlighting volatility. Bollinger bands offer a great way to plot cryptocurrency assets’ notoriously high volatility.
Three bands from Bollinger bands are superimposed over the candlestick chart. The moving average, which typically has 20 periods, is the middle band. The value of the middle lines plus two times the price’s standard deviation makes up the upper band. The middle line’s value less two standard deviations forms the lower band.
As a result, the width of the bands is influenced by how erratic the price has been. The bands enlarge when the markets are choppy and contract when the price has been more volatile. Every time the price touches an outer band, it tends to move back toward the centre of the bands. Depending on the anticipated direction of the return, traders can use this to go long or short whenever the asset touches the outer bands. When candles are outside the bands with extremely high or low points, Bollinger bands can even show whether an asset is overbought or oversold.
Finally, it’s generally preferable to use longer time frames for Bollinger bands because using very short time frames frequently results in noise and false moves.