Trading Bollinger Bands With Cryptocurrency
Bollinger Bands are a specialized type of technical analysis tool (BTW, click here for our overview of the basics of technical analysis if you need that first). They are specifically a kind of trading envelope or band. The purpose of trading envelopes and bands is the same. They offer relative low and high definitions that may be used for creating rigorous approaches to trading, based on pattern recognition, and more. Usually, bands are seen as a way to measure central tendencies as a base, like a moving average. Envelopes, on the other hand, encompass price structure without having a central focus that is clearly defined, perhaps by referencing lows and high, or via cyclic analysis. In this article, we will be using trading bands as a way to refer to sets of curves that are used by market technicians for defining a low or high on a relative basis.
When researching the subject, the earliest trading band examples that I was able to find came in 1960 from Wilfrid Ledoux. He used curves that connected the Dow Jones Industrial Average's highs and lows as a type of long-term market-timing tool. The precise sequence for trading band development following Ledoux gets a bit cloudy. A trading system was proposed by Chester Keltner in 1960 called the 10-Day Moving Average Rule. Market technicians later referred to it as Keltner bands. Next came J.M. Hurst. In his work, he used cycles for drawing envelopes around price structures. This work was elegant that it was transformed into a kind of grail for the many people to attempted to replicate it. However, few succeeded.
Percentage bands were very popular in the early 1970s, although we do not know who created them. These were a moving average that moved up and down according to a user-specified percentage. One decided advantage that percentage bands have is deploying them by hand is easy. At any given point in time, a 7% band is comprised of a base moving average, a lower curve that is at 93% of the base, and an upper curve that is at 107% of the base. (It was suggested by Arthur Merrill to multiply and divide by one plus the desired percentage).
Percentage bands were by far the most popular bands when I first started to use grading bands. Then Donchian bands came along, which were a great example of envelopes. It consists of the lowest low and highest high of the immediate prior n-days. Those are the major types of envelopes/bands that I am aware of. There have been numerous variations on those concepts over the years, with some of them still being used today. Currently, the most popular trading band approaches are Bollinger, Percentage, Keltner, and Donchian bands. Percentage bands remain fixed, they don't adapt when market conditions change; Keltner bands make use of the Average True Range for adaptive mechanisms; Donchian bands use the recent lows and highs. Bollinger Bands make use of the standard deviation in order to adapt to market conditions that are changing.
When and How Does It Work?
When I became active in the markets in 1980 on a fulltime basis, my main interest was technical analysis and options. In those days, it was hard to find information on both of them, but I was persistent. I managed to make some progress with help from an early microcomputer. We used percentage bands at that time and compared price actions in the bands to supply/demand tool action like the David Bostian tool called Intraday Intensity. When a touch of the upper band on price was not confirmed in the oscillator by strength, that became a sell setup, while a similarly unconfirmed tag on the lower band indicated a buy setup. However, the problem with this approach was that over time the percentage bands had to be adjusted to keep them relevant to the price structure. Also, this adjustment process allowed emotions to enter into the overall analytical process. So if you happened to be bullish, then you naturally tended to draw the bands so that a bullish picture was presented. If you were bearish on the other hand, it naturally resulted in a picture that had a bearish bias. That was clearly a problem. We had some success with reset rules such as lookbacks. However, adaptive mechanisms were what was really needed.
At the time, I was trading options and had developed some volatility models in SuperCalc, which was an early spreadsheet program. I was copying a volatility formula down a data column one day and noticed that over time the volatility was changing. When I saw that, I wonder if the volatility could be used for setting trading bands' widths. Today that idea might sound obvious, however, it was a real leap of faith at that time. Volatility was viewed as a static quantity at that time, as a property of the security and if it changed at all, it only did so in the very long-term, such as over the life of the company. Today, we are aware that volatility is a very dynamic quantity.
How can I use it in the blockchain space?
After doing some experimenting, I settled in on the formulation that we all are familiar with today, an n period moving average that has bands drawn below and above it at intervals that are determined by a multiple of the standard deviation (the population calculation of the standard deviation is what we use). Today's faults are the same ones from 35 years ago. The moving average has 20 periods with bands that are set at minus and plus two standard deviations from the same data that is used for calculating the average. However, at that time there were no "Bollinger Bands." They came later when Financial News Network host Bill Griffeth asked me on air what my bands were called. I had presented a chart of mine that showed an unconfirmed tag of the upper band and had explained that a sell signal would be generated on the first down day. Then Bill asked me what I called the lines that were around the price structure. I was completely unprepared for the question, so I just blurted out "Bollinger Bands," which was the obvious alliterative choice.
So what are Bollinger Bands exactly? They are curves that are dawn around and in the price structure. They are usually comprised of a moving average (which is the middle band), a lower band, and an upper band. They answer the question of whether prices are low or high on a relative basis. The time when Bollinger Bands work the best is when the middle band is selected to reflect the intermediate-term trend. Relative price level data is combined with the trend information.
Excerpts from John Bollinger-
Disclaimer for The Arcane Bear
If you require any more information or have any questions about our site’s disclaimer, please feel free to contact us at our help desk email@example.com
Disclaimers for www.arcanebear.com
All the information on this website is published in good faith and for general information purpose only. www.arcanebear.com does not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information you find on this website (www.arcanebear.club), is strictly at your own risk. www.arcanebear.club will not be liable for any losses and/or damages in connection with the use of our website.
The information provided a The Arcane Bear and accompanying material is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.
The Arcane Bear does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law, The Arcane Bear disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.
Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.
From our website, you can visit other websites by following hyperlinks to such external sites. While we strive to provide only quality links to useful and ethical websites, we have no control over the content and nature of these sites. These links to other websites do not imply a recommendation for all the content found on these sites. Site owners and content may change without notice and may occur before we have the opportunity to remove a link which may have gone ‘bad’.
Please be also aware that when you leave our website, other sites may have different privacy policies and terms which are beyond our control. Please be sure to check the Privacy Policies of these sites as well as their “Terms of Service” before engaging in any business or uploading any information.
By using our website, you hereby consent to our disclaimer and agree to its terms.
Should we update, amend or make any changes to this document, those changes will be prominently posted here.
Thank you, you have no become a part of the development of our new trading space together.
For this, we are extremely Grateful!
The Entire Bear Council
The information on this site is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information on this website constitutes, or should be relied on as, a suggestion, offer, or other solicitation to engage in, or refrain from engaging in, any purchase, sale, or any other any investment-related activity with respect to any cryptocurrency or other transaction.
Cryptocurrency investments are volatile and high risk in nature.
Don't invest more than what you can afford to lose.
We are not paid to do any reviews, but we do take positions in projects that we believe are promising.
Arcane Bear makes no representations, warranties, or assurances as to the accuracy, currency or completeness of the content contained in this website or any sites linked to or from this website.
Terms and Conditions
PLEASE READ THESE TERMS AND CONDITIONS ("TERMS") CAREFULLY BEFORE USING THE SERVICES DESCRIBED HEREIN.
BY UTILIZING THE WEBSITE LOCATED AT www.arcanebear.com ("WEBSITE") AND PRODUCTS THEREIN, YOU ACKNOWLEDGE THAT YOU HAVE READ THESE TERMS AND CONDITIONS AND THAT YOU AGREE TO BE BOUND BY THEM. IF YOU DO NOT AGREE TO ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, YOU ARE NOT AN AUTHORIZED USER OF THESE SERVICES AND YOU SHOULD NOT USE THIS WEBSITE OR ITS PRODUCTS. ARCANE BEAR RESERVES THE RIGHT TO CHANGE, MODIFY, ADD OR REMOVE PORTIONS OF THESE TERMS AT ANY TIME FOR ANY REASON. WE SUGGEST THAT YOU REVIEW THESE TERMS PERIODICALLY FOR CHANGES. SUCH CHANGES SHALL BE EFFECTIVE IMMEDIATELY UPON POSTING. YOU ACKNOWLEDGE THAT BY ACCESSING OUR WEBSITE AFTER WE HAVE POSTED CHANGES TO THESE TERMS, YOU ARE AGREEING TO THE MODIFIED TERMS. THIS DISCLAIMER OR ANY OTHER DOCUMENT, PRODUCED AND SIGNED BY ARCANE BEAR, DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL ANY SHARES OR SECURITIES OR THE PRODUCTS OFFERED THERETO. NONE OF THE INFORMATION OR ANALYSES PRESENTED ARE INTENDED TO FORM THE BASIS FOR ANY INVESTMENT DECISION, AND NO SPECIFIC RECOMMENDATIONS ARE INTENDED, AND ARCANE BEAR SERVICES AND THE WEBSITE ARE NOT, DO NOT OFFER AND SHALL NOT BE CONSTRUED AS INVESTMENT OR FINANCIAL PRODUCTS. ACCORDINGLY, ARCANE BEAR DOES NOT PROVIDE INVESTMENT ADVICE OR COUNSEL OR SOLICITATION FOR INVESTMENT IN ANY CRYPTOCURRENCY AND/OR SECURITY AND SHALL NOT BE CONSTRUED IN THAT WAY. ARCANE BEAR EXPRESSLY DISCLAIMS ANY AND ALL RESPONSIBILITY FOR ANY DIRECT OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND WHATSOEVER ARISING DIRECTLY OR INDIRECTLY FROM: (I) RELIANCE ON ANY INFORMATION PRODUCED BY ARCANE BEAR, (II) ANY ERROR, OMISSION OR INACCURACY IN ANY SUCH INFORMATION OR (III) ANY ACTION RESULTING THEREFROM, (IV) USAGE OR ACQUISITION OF PRODUCTS, AVAILABLE THROUGH THE WEBSITE.
Arcane Bear retains all right, title and interest in all of our intellectual property, including inventions, discoveries, processes, marks, methods, compositions, formulae, techniques, information and data, whether or not patentable, copyrightable or protectable in trademark, and any trademarks, copyrights or patents based thereon. You may not use any of our intellectual property for any reason, except with our express, prior, written consent.
All content included on the Website and associated products and services, such as, but not limited to, text, graphics, logos, and images is the property of Arcane Bear and protected by copyright, trademark and other laws that protect intellectual property and proprietary rights. You agree to observe and abide by all copyright and other proprietary notices, legends or other restrictions contained in any such content and will not make any changes thereto.
Access to the Website
The Arcane Bear Website is provided without warranty of any kind, either express or implied. We do not represent that the Website will be available 100% of the time to meet your needs. In case of interruptions we take all reasonable actions to provide you with access to the Website as soon as possible, but there are no guarantees that access will not be interrupted, or that there will be no delays, failures, errors, omissions or loss of transmitted information. We may suspend use of the Website at any time for maintenance.