Bitcoin Bollinger Bands Explained

Bollinger Bands are a technical analysis tool that was invented by John Bollinger in the 1980s. They are used to measure the volatility of a financial asset, like Bitcoin, over a specified period of time. Bollinger Bands comprise three lines: a middle band representing a simple moving average (typically 20-day), and two outer bands that are standard deviations away from the middle band.

Middle Band

The middle band is a simple moving average (SMA) of the asset's price over a specific period, usually 20 days.

Outer Bands

The outer bands are two standard deviations away from the middle band. They represent the upper and lower limits of the asset's price movement.

Volatility

Bollinger Bands expand and contract based on the volatility of the asset. When the bands expand, it indicates an increase in volatility, while contraction suggests a decrease in volatility. Traders use Bollinger Bands to identify potential overbought or oversold conditions in the market.