Price breaks out of upper bollinger band when trading coin

EducationAugust 24, 2021

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Price breaks out of the upper Bollinger band when trading coins is common, but you may not know how to react. This article will give some perspectives for your reference when trading cryptocurrencies.

What are Bollinger Bands?

Bollinger band is a commonly used indicator in technical analysis. This tool combines the Moving Average indicator (the moving average – shows the average value of the price over a period of time) and the standard deviation.

The Bollinger band indicator is often used to measure price fluctuations. Following this indicator, you will know whether the market is fluctuating strongly or slowing down.

The structure of the Bollinger bands indicator:

Bollinger bands indicator includes 3 lines:

  • The MA20 is in the middle, most commonly used by many traders. You can choose the period of the MA as you like.
  • The upper band is the standard deviation of +2% from the middle MA.
  • The lower band is a -2% standard deviation from the middle MA.

Price breaks out of upper bollinger band

What does the price breaking out of the upper Bollinger band mean?

The Bollinger Bands indicator is designed to fluctuate between the upper and lower bands usually. When the 2 bands of the Bollinger band narrow, it means the market is slowing down. Traders need to wait for stronger buyers or sellers.

  • If the price then crosses from bottom to top towards the upper border, the bulls are stronger. Prices tend to increase.
  • Conversely, if the price cuts below the MA after the two bands narrow, moving towards the lower border, it means that the sellers are stronger. The downtrend is winning.

When the two bands of the Bollinger Bands are narrowing, and then there is a clearer trend, the price often breaks out of the band in a stronger direction. After that, the border will widen, and the price will also correct to enter the border simultaneously.

According to the indicator’s algorithm, the price entering the band after breaking out of the upper Bollinger band is because the Bollinger band will open after a strong oscillation. But there is also another reason, that is because of market psychology. When there is a spike in trading levels, many traders will take profits or slow down the trade, causing the price to experience a correction after a strong fluctuation. Then correct before continuing the trend. This is a common situation in the cryptocurrency market.

Since the price usually moves between the 2 bands, when the price breaks out of the upper Bollinger band, it means that the coin price is in a strong uptrend, and soon, it will correct again so that the price will enter the Bollinger band.

How to apply the Bollinger band indicator to find trading opportunities

Find trading opportunities using the Bollinger bands indicator

Trade with Bollinger bands when the market is sideways (sideways)

When the Bollinger band narrows, it means that the price is moving sideways, and there is a tug-of-war between buyers and sellers. At this time, the price will continuously run back and forth between the two boundaries. Some traders often enter a BUY order when the price hits the lower band of the Bollinger band and take profits when the price touches the upper band of the Bollinger band.

Trade with Bollinger Bands in a Trending Market

When the 3 lines of the Bollinger band are pointing up and the price is above the MA20, it means that the market is in an uptrend, and you can enter a buy order. After each price correction, a red candle appears, then a green candle returns, forming a new bottom, placing a stop loss below the new bottom.

On the contrary, when the 3 lines of the Bollinger band are pointing down, the price cuts the MA20 from above and fluctuates in the area below the MA20, which means that the market is in a downtrend, and you can place a sell order.

How to trade when price breaks out of upper Bollinger band

In a situation where the price breaks out of the upper Bollinger band, if you have already entered a trade-in time, traders often apply the strategy:

  • Take partial profits when the price breaks out of the upper band.
  • Or raise the stop loss to the price at the MA line to preserve profits.

If you have not entered the trade coin order before, you should not rush to enter the order immediately when you encounter this situation.

  • You should only enter an order after the price corrects and after the green candle appears again.
  • Place stop loss at the bottom just created to limit the risk when the price does not go in the desired direction.

We do not encourage you to use short sell orders (Sell) when trading and especially should only trade buy orders when the coin price is in an uptrend.

How to enable Bollinger band indicator to trade coins on Binance

To enable the Bollinger band indicator, you need to go to your Binance account. If you do not have an account, please register by following the link below:

* See more: The complete guide Binance from a to z

After logging into your account, click [Trade] on the toolbar and select [Classic] or [Advanced]

How to read candlestick charts to trade coins 4

Select the coin pair you want to see the chart:

5 How to read candlestick charts to trade coins

Click on the [Technical Indicator] symbol to select the indicator you want to use:

Price breaks out of upper bollinger band 4

Click [BOLL], enter the MA period in the [Length] box, enter the standard deviation in the [Multiplier] box. Usually, traders use MA20 and a 2% standard deviation.

Choose a color for the borders and click [Save].

Price breaks out of upper bollinger band 5

Conclusion: Price breaks out of upper Bollinger band

So you have successfully turned on the Bollinger band on Binance and learned how to trade with this indicator. The rest is that you need to practice trading and apply it correctly for each case. In addition, to increase your chances of success in trading, you need to learn other price analysis techniques or learn how to combine other indicators when trading.

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