Bollinger Band and how you can use it
The Bollinger Band is an indicator and very popular in chart analysis. There are three different moving averages. The middle average is the Simple Moving Average 20. The upper and lower averages are calculated mathematically with a special factor.
If you want to know more about it, here is an article from Wikipedia https://de.wikipedia.org/wiki/Bollinger-B%C3%A4nder.
This indicator can be used in several ways. Exaggerations and the direction finding become quickly apparent. It is even possible to confirm breakouts, but this would be something for advanced users.
Direction finding
The Moving Average is quite small and therefore rather short term. Of course, it can also be used on the long-term time units and is therefore useful for longer trades. A simple trading approach would be to trade only in the direction in which the moving average (MA) is pointing. In short, if the MA is pointing upwards, only buy and if it is falling, only sell.
Recognising exaggerations
The tape is designed so that the price usually stays within the upper and lower limits. If we see that the price is above or below the bands, then this is often a sign of an exaggeration. Often these outer bands are simply used to trade bounces, as very often a change of direction takes place at these.
Recognising confirmed breakouts
A good method is also to monitor breakouts, because all too often there is a false breakout. As soon as both bands contract and the middle Ma20 is horizontal, the chart prepares for a breakout. The trick is to wait for the first breakout and see if both outer bands open. The closing price of a candle is decisive here and must be waited for. If the band does not open and we are outside the bands, then this is very likely a false breakout. These can then of course also be traded and a counter-position taken.
However, if both bands open, then a breakout is likely to continue.
To show examples on a living object, I have here the cryptocurrency LINK/USDT.
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