Volatility Indicator

Bollinger Bands BB

Bollinger Bands is a technical analysis indicator that consists of a moving average and two standard deviation lines, one above the moving average and one below. The bands expand and contract as volatility increases or decreases. The indicator is used to identify overbought and oversold conditions and to determine the direction and strength of a trend. Bollinger Bands are considered a leading indicator because they are based on current market conditions and can signal a trend reversal before it occurs.

Why Bollinger Bands Are a Must-Use Indicator in Crypto Trading: A Trio of Tools for Success


In the fast-paced world of cryptocurrency trading, having the right set of tools can make the difference between success and failure. One such indispensable tool is the Bollinger Bands indicator. Developed by John Bollinger in the 1980s, this versatile indicator has proven its mettle in various financial markets, and the crypto market is no exception. In this article, we’ll explore why Bollinger Bands are particularly useful in crypto trading and how they can be effectively combined with two other indicators for a comprehensive trading strategy.

The Power of Bollinger Bands

Volatility Measurement

Cryptocurrencies are known for their extreme volatility, and Bollinger Bands excel at measuring this. The bands expand during periods of high volatility and contract during low volatility, providing traders with a dynamic view of market conditions.

Trend Identification

Bollinger Bands can also help identify the direction of the market trend. When prices are consistently touching the upper band, it’s a sign of an uptrend; conversely, if they are touching the lower band, it’s indicative of a downtrend.

Overbought and Oversold Conditions

The area between the bands represents a range where the asset is considered ‘fairly valued.’ When the price moves outside this range, it is often a signal that the asset is overbought (above the upper band) or oversold (below the lower band), providing potential entry and exit points.

Complementary Indicators

While Bollinger Bands are powerful, they are most effective when used in conjunction with other indicators. Here are two that pair exceptionally well with Bollinger Bands:

  1. Relative Strength Index (RSI)

Why It Complements Bollinger Bands:

  • Overbought/Oversold Confirmation: RSI can confirm the overbought or oversold conditions signaled by the Bollinger Bands.
  • Divergence: If Bollinger Bands show a new high or low, but RSI doesn’t, it can be a strong reversal signal.

How to Use Them Together:

  • Look for instances where both Bollinger Bands and RSI indicate overbought or oversold conditions for a more reliable signal.
  • Use RSI divergence as a confirmation for potential reversals signaled by Bollinger Bands.
  1. Moving Average Convergence Divergence (MACD)

Why It Complements Bollinger Bands:

  • Trend Confirmation: MACD can confirm the trend direction indicated by Bollinger Bands.
  • Momentum: MACD measures the momentum of a price move, adding another layer of information.

How to Use Them Together:

  • Use MACD to confirm the trend direction indicated by the Bollinger Bands.
  • When MACD crosses its signal line while the price is touching one of the Bollinger Bands, it can be a strong entry or exit signal.

Putting It All Together: A Trio for Success

By combining Bollinger Bands with RSI and MACD, traders can develop a robust trading strategy that offers multiple layers of confirmation and insight. Here’s a simple workflow:

  1. Identify Trend with Bollinger Bands: Look for prices touching the upper or lower bands.
  2. Confirm with MACD: Ensure MACD aligns with the trend direction.
  3. Validate Overbought/Oversold with RSI: Use RSI to confirm if the asset is overbought or oversold.
  4. Execute Trade: Only when all three indicators align should you consider entering or exiting a trade.


Bollinger Bands offer a dynamic and versatile method for understanding market conditions, particularly in the volatile world of crypto trading. When paired with complementary indicators like RSI and MACD, traders have at their disposal a powerful trio of tools that can significantly enhance their trading strategy. Given the complexities and rapid movements in the crypto market, employing such a multi-faceted approach is not just advisable; it’s essential for long-term success.

Real-Time Trading Scenarios:

  1. Bullish Reversal in a Downtrend:
  • Scenario: The price of a cryptocurrency has been in a downtrend, touching the lower Bollinger Band.
  • MACD Confirmation: You notice that the MACD line is crossing above the signal line, indicating potential bullish momentum.
  • RSI Validation: The RSI is below 30, signaling that the asset is oversold.
  • Action: This is a strong buy signal as all three indicators align. You could consider entering a long position here.
  1. Bearish Reversal in an Uptrend:
  • Scenario: The cryptocurrency has been in an uptrend, consistently touching the upper Bollinger Band.
  • MACD Confirmation: The MACD line crosses below the signal line.
  • RSI Validation: RSI is above 70, indicating that the asset might be overbought.
  • Action: All indicators suggest that the asset is likely to experience a downturn. This could be an optimal point to exit a long position or enter a short position.
  1. Sideways Market:
  • Scenario: The asset is trading within the Bollinger Bands, indicating a lack of strong trend.
  • MACD Confirmation: MACD line and the signal line are close to each other, confirming the lack of momentum.
  • RSI Validation: RSI is hovering around the 50 mark, further confirming the market’s indecision.
  • Action: This could be a good time to stay out of the market or employ strategies suitable for a range-bound market, like writing options.
  1. Breakout Trading:
  • Scenario: The asset price suddenly breaks above the upper Bollinger Band.
  • MACD Confirmation: The MACD line is well above the signal line, indicating strong bullish momentum.
  • RSI Validation: RSI is above 70 but shows no signs of divergence, suggesting that the asset might still have room to run.
  • Action: This could be an opportunity to enter a long position, but given the overbought conditions, it’s crucial to set tight stop-loss orders.

Additional Tips:

  • Risk Management: Always set stop-loss and take-profit levels, especially in the volatile crypto market.
  • Backtesting: Before employing this trio of indicators in your real-time trading, consider backtesting the strategy on historical data.
  • Timeframe: Ensure that you’re looking at a timeframe that aligns with your trading goals. For instance, a day trader might look at 15-minute charts, while a swing trader might consider daily charts.
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