This Indicator Suggests Bitcoin Is Overdue For A Big Price Move
A popular price-chart indicator known as the Bollinger bandwidth suggests bitcoin could soon chart a big move up or down.
The leading cryptocurrency has spent the better part of the last three weeks trading in the range of $50,000 to $60,000. The consolidation has worsened of late, with bitcoin bulls unwilling to lead the price action above $60,000 and bears struggling to force a break below $55,000.
Due to the persistent lack of clear directional bias, the Bollinger bandwidth, a price volatility gauge, has declined to a four-month low of 0.15. Bitcoin witnessed big moves during the 2017 bull run each time the bandwidth fell to 0.15.
The indicator is calculated by dividing the spread between the Bollinger bands by the 20-day average of the cryptocurrencys price. Bollinger bands are volatility lines placed two standard deviations above and below the 20-day average of price.
The metric dropped to around 0.15 in February, April and late October 2017, just before price rallies. A similar reading in March, July and September paved the way for market corrections.
The data tells us the impending volatility explosion is agnostic to price direction, meaning the big move can happen on either side.
Bitcoins ongoing range play looks quite similar to the early December consolidation below $20,000, which ended with a breakout following the Bollinger bandwidth falling to 0.15.
Gunbot Adx Confirming Indicator Settings
ADX_ENABLED: false, if you set it to true, will activate the Average Directional Movement Index as a confirming indicator before buying or selling.
ADX_LEVEL: 25, this is the minimum you would allow the trend level to execute the trades.
DI_PERIOD: 14, this is the number of candles used to calculate the ADX.
Beginners Guide To Day Trade Cryptocurrency Using Basic Technical Analysis Tools
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The Basics Of Bollinger Bands
In the 1980s, John Bollinger, a long-time technician of the markets, developed the technique of using a moving average with two trading bands above and below it. Unlike a percentage calculation from a normal moving average, Bollinger Bands® simply add and subtract a standard deviation calculation.
Standard deviation is a mathematical formula that measures volatility, showing how the stock price can vary from its true value. By measuring price volatility, Bollinger Bands® adjust themselves to market conditions. This is what makes them so handy for traders they can find almost all of the price data needed between the two bands.
How To Read Crypto Charts: A Beginners Guide
The first time you look at crypto price charts, they may look like hieroglyphics to you. But the good news is price charts are actually easier to read than you may think.
In this guide, you will learn how to read charts, and how to use some basic technical analysis tools that you can use to help you make trading decisions.
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What If The Bands Fail
This section is going to feel like a nice cold splash of water right in your face.
Surely you didnt think Bollinger Bands would paint this rosy picture of trading bliss, did you?
Like anything else in the market, there are no guarantees. No doubt, Bollinger Bands can be a great tool for identifying volatility in a security, but it can also prove to be a nightmare when it comes to newbie traders. Dont skip ahead, but I will touch on this from my personal experience a little later in this article.
Like any other trade signal, you will need to exit your position without reservation.
Not exiting your trade can almost prove disastrous as three of the aforementioned strategies are trying to capture the benefits of a volatility spike.
For example, imagine you are short a stock that reverses back to the highs and begins riding the bands. What would you do?
Let me help you out if you are confused kill the trade!
While bands do a great job of encapsulating price movement, it only takes one extremely volatile stock to show you the bands are nothing more than mans failed attempt to control the uncontrollable.
While there is still more content for you to consume, please remember one thing you must have stops in place!
Size Of The Histogram
In the graph above, you see histograms of differing sizes. A large histogram shows that the momentum is heavy either on the bearish side or on the bullish side .
Rapid Rises or Falls
When the MACD rises or falls rapidly it is a signal that the asset is overbought or oversold and will soon return to normal levels. Eg. check this again:
So we have a rapid descent, followed by a rapid ascent, a rapid descent and then a long period of sustained ascent. This tells us that the bears and bulls have been trading shots until finally, the bulls were able to end up on top.
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A Note On Open Source Bots
There is a great deal of open source code that can be used to develop and run crypto trading algorithms. These are fine to use as long as the code is indeed open and you can audit it.
There are a whole host of fraudulent crypto trading robots that are often promoted as an automated and simple way for traders to make money. These are often nothing but scam products that will either steal your private keys or take you to an illegitimate broker.
Example of a Scam Bot Promoted Online
For example, you have Bitcoin Trader which is sold under the false pretext of making profit for their users. The same robot has been involved with fake advertising which claimed that it was endorsed by the Dragons Den Peter Jones on twitter.
Another more user friendly alternative is to develop programmitic trading scripts on the MetaTrader platforms. MT4 and MT5 are well known platforms used to trade CFDs which are another derivative product. We wont go into CFDs here but for more information you can read this overview.
Characteristics Of Bollinger Bands
To critically identify and to utilize Bollinger bands critically, here are the main characteristics:
- This indicator is used to measure the volatility of a price, though it can also effectively determine the trend as well as the overbought and the oversold levels.
- Bollinger Bands is an indicator consists of three lines an SMA 20 and an upper and lower line, each set with two standard deviations by default.
- The bands automatically expand when volatility increases and narrow when the market calms down.
- The price tends to return to the middle of the bands. Thus, every time it touches one of the bands, you can expect it to bounce to the opposite side. Hence, that makes Bollinger Bands a good indicator for swing traders.
- If the bands are very close to each other for a while, a breakout may happen in either direction.
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Gunbot Stochastic Confirming Indicator Settings
STOCH_ENABLED: false, you can set to true, thus enabling the Stochastic Indicator, and Gunbot will start using the Stochastics to confirm your trades.
STOCH_BUY_LEVEL: 20, this is the value where Gunbot will start executing Buy orders in case you want to disable Buy, use -1001
STOCH_SELL_LEVEL: 80, this is the value where Gunbot will start executing Sell orders in case you want to disable Sell, use -1001
STOCH_METHOD: oscillator, if you want to use a range or set to cross if you want to execute the orders once the price crosses your Buy or Sell set level.
STOCH_K: 14, the number of candles used to calculate %K AKA Fast Stochastic
SLOW_STOCH_K: 3, this is the number of candles used to calculate %K AKA Slow Stochastic
STOCH_D: 3, this is the number of candles used to calculate the %D line.
Strategy Snap Back To The Middle Of The Bands
This strategy is for those of us who like to ask for very little from the markets. Essentially you are waiting for the market to bounce off the bands back to the middle line, which carries a high winning percentage over time.
In this setup, you are not obsessed with getting in a position for it to swing wildly in your favor. Nor are you looking to be a prophet of sorts and try to predict how far a stock should or should not run.
The key to this strategy is waiting on a test of the mid-line before entering the position. You can increase your likelihood of placing a winning trade if you go in the direction of the primary trend and there is a sizable amount of volatility.
As you can see in the above example, notice how the stock had a sharp run-up, only to pull back to the mid-line. You would want to enter the position after the failed attempt to break to the downside.
You can then sell the position on a test of the upper band. If you have an appetite for risk, you can ride the bands to determine where to exit the position.
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How To Use Bollinger Bands In Trading
With that in mind, lets imagine how one could potentially interpret the data provided by the Bollinger Bands indicator.
If the price makes its way above the moving average and exceeds the upper Bollinger band, it is probably safe to assume that the market is overextended . Or else, if the price touches the upper band multiple times, it may indicate a significant resistance level.
In contrast, if the price of a certain asset drops significantly and exceeds or touches the lower band multiple times, chances are the market is either oversold or found a strong support level.
Therefore, traders may use BB to set their selling or buying targets. Or simply to get an overview of the previous points where the market presented overbought and oversold conditions.
In addition, the Bollinger Bands expansion and contraction may be useful when trying to predict moments of high or low volatility. The bands can either move away from the middle line as the price of the asset becomes more volatile or move towards it as the price becomes less volatile .
So, the Bollinger Bands are better suited for short-term trading as a way to analyze the markets volatility and try to predict forthcoming movements. Some traders assume that when the bands are over-expanded, the current market trend may be close to a consolidation period or a trend reversal. Alternatively, when the bands get too tight, traders tend to assume that the market is getting ready to make an explosive movement.
Other Benefits Good Crypto Can Bring You
As you can see, placing trades with Good Crypto is as easy as it can get. Once the orders are placed, you are stress-free and can leave the screen.
- Good Crypto offers way more tools. Besides professional charts and trading options like programmable orders and trailing stop orders, it includes a track record of all your moves.
- Connect up to 30 different exchanges. Trade through them thousands of markets inside the app, without commission or fee. Follow your portfolios performance any time of the day, aggregated in a beautiful overview and in real-time.
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Using Bollinger Bands Trading Strategy In Gold Trading
Successful gold traders use every resource at their disposal to inform their trading and help them make profitable decisions that pay off in the short and long term. The first resource isnt complicated, you just need to be aware of global news. Economic, political, and social changes can have huge effects on currencies and gold prices. Using world news to inform your trading is known as fundamental analysis.
The other important component is called technical analysis. This is about knowing how to read charts so you know where the market has been, where it is, and where it is going. Chart indicators tell you everything you need to know, as long as you can read them. A Bollinger Band is a chart indicator that can be used to measure the volatility of a market. Lets explain what Bollinger Bands are and how they can be used to enhance your online gold trading:
Bollinger Bands Can Spot Volatility Squeezes
According to John Bollinger, assets switch between phases of low volatility and high volatility. Therefore, after periods of low volatility, traders may expect the volatility to shoot up, which could result in trending moves.
XRP/USDT daily chart. Source:
The above chart shows how XRPs volatility dropped sharply between mid-September to mid-November 2020, marked as an ellipse on the chart. After about two months of this low volatile phase, the volatility shot up and the XRP/USDT pair offered an excellent trading opportunity.
BNB/USDT daily chart. Source:
In the above example, Binance Coin was in a downtrend and the volatility tightened between the end-September to mid-November 2018, marked as an ellipse on the chart. Here, the volatility expanded to the downside and the BNB/USDT pair resumed its downtrend.
A volatility squeeze does not predict the direction of the next breakout. Sometimes, the market makers nudge the price above the upper band and below the lower band, trapping the novice traders. Therefore, traders may avoid pre-empting the direction and wait for the price to either break above the resistance or below the support of the range before establishing a position.
ETC/USDT daily chart. Source:
However, the price quickly climbed back above the lower band on Dec. 24, 2020, and the ETC/USDT pair soon started a strong up-move.
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Gunbot Bollinger Bands Strategy Sell Settings
As the leading provider of automation services, Gunbot has various features to help you manage your coins. One such feature is the Sell settings used to control when the bot should execute a sell order.
Sell settings are the first check for sell orders. These parameters control how an order is executed when you use bb as the selling method.
SELL_ENABLED: true, This is the default value, but you can set this to false if you do not want Gunbot placing sell orders.
GAIN: 0.5, this is the default gain value which means Gunbot will sell when the price is 0.5% above your break-even target, and your HIGH BB setting is achieved. In other words, this is your desired profit gain per trade.
TAKE_PROFIT: false, this is the default setting if you set it to true, Gunbot will be trailing the prices up between the break-even point and your strategy exit target. A sell order will be placed when the trailing stop limit or other trading conditions are met.
If youre looking for a more hands-off experience when it comes to trading, take profit can be your best friend. With this setting enabled, Gunbot will try to strategically close trades between the break-even point and your strategy exit point, based on the value you set as taking Profit Range in the next step.
TP_RANGE: 0.5, this is the default value, which means the initial trailing stop will start at 0.5% below your break-even target if you want to start above break-even, set the next parameter.
Moving Average Convergence Divergence
The moving average convergence divergence is a momentum indicator which is extremely useful in letting us know whether an asset has bullish or bearish momentum. It shows the relationship between two exponential moving averages of an assets price.
NOTE: An exponential moving average is a kind of moving average like the simple moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average , which applies an equal weight to all observations in the period.
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