Learn Bollinger Bands in One Article: How to Use the Three Lines (Upper Band, Middle Band, Lower Band) to Judge Market Trends and Find Trading Opportunities, Plus How to Avoid Pitfalls and Control Risk. The specific content can be divided into these sections:
First, understand the "basic mechanics" of Bollinger Bands: invented by John Bollinger in 1983, the core consists of three lines — the middle band defaults to a 20-day average price, the upper band is the middle band plus 2 times the volatility (standard deviation), and the lower band is the middle band minus 2 times the volatility. The channel formed by these three lines shows price volatility: the wider the channel, the more violent the price swings; the narrower the channel, the closer to a reversal (in 78% of cases, a narrow channel is followed by significant price action). Additionally, the middle band is the "trend dividing line" — when price deviates too far from it, it will likely revert back.
How to read "buy and sell signals": Trend signals: Price breaks through the middle band with increasing trading volume (more than the 20-day average trading volume), and 3 consecutive K-lines stay above the middle band, this is a reliable uptrend signal; conversely, breaking below the middle band is a downtrend signal. Reversal signals: The upper and lower bands get very close together (contraction over 20%), like being "squeezed" together, then either volume expands with a break above the upper band or a drop below the lower band, both indicating a reversal is coming, but don't rush on the first breakout — there's a 30% chance it's a false signal, so wait for close confirmation which is safer. Overbought/oversold signals: Price surges above the upper band, which means "too much buying" (overbought), you can consider selling some; drops below the lower band, which means "too much selling" (oversold), you can try to reduce buying. Moreover, if price stays outside the band for more than 4 K-lines, there's a 68% probability it will revert to the middle band, suitable for short-term scalping.
How to use different trading timeframes: Short-term (day trading): Watch 15-minute and 1-hour charts, use the 4-hour chart to determine the major direction, set 2% stop loss and 3% take profit, don't be greedy. Medium-term (swing trading): Watch 4-hour and daily charts, refer to the weekly middle band to judge whether to buy or sell, if the upper and lower bands expand at 45 degrees or more, it indicates a strong trend, you can hold longer. Long-term: Watch weekly and monthly charts, when all three lines trend upward, buy decisively and hold for at least 3 months; when the monthly band width breaks through the 3-year extreme, it could be a bull market top or bear market bottom, you can accumulate positions in stages.
Don't just look at Bollinger Bands, "partner" it with other indicators: Looking at Bollinger Bands alone is easy to fall into traps, combine it with RSI, MACD, and trading volume. For example, if price makes a new high but RSI doesn't, this is "top divergence" and a decline is coming; when MACD shows a golden cross (buy signal) and price breaks through the middle band simultaneously, the uptrend is more reliable. Additionally, breakout volume must be 2 times or more the 30-day average, otherwise it might be a false breakout.
Risk control is paramount: Stop loss and take profit: After buying, if price breaks below the middle band, sell immediately, don't hold on; after selling, if price breaks above the middle band, stop loss and exit. You can also sell in stages, for example, sell 30% when price touches the opposite band first, then sell another 40% when it retraces to the middle band. Leverage usage: When price breaks through the upper or lower band, reduce leverage; when the channel narrows slightly, you can increase it a bit. The larger the leverage, the stricter the stop loss should be, for example, 5x leverage can tolerate at most 1% loss, 20x leverage can only tolerate 0.25% loss, don't exceed 5% of total capital per trade. Avoid false breakouts: Signals from short timeframes (like 15-minute) should reference the direction of long timeframes (like 4-hour); if price makes a new high but the band hasn't widened, or trading volume hasn't expanded, it could be a false breakout, don't follow blindly.
How to handle special situations: Extreme market conditions (like price spikes or crashes): Adjust the band width parameter from 2x to 3x to avoid frequent volatility triggering signals; if the band suddenly widens 3x or more within 24 hours, be alert to black swan events, immediately reduce leverage. Range-bound consolidation (price keeps oscillating): Adjust the middle band period to 10 days for more sensitivity; if price volatility is 20% less than band width with no volume expansion, stay in cash and wait, don't trade carelessly. Black swan warning: If mainstream coins and Bitcoin bands expand abnormally simultaneously with high correlation, there may be systemic risk, prepare hedging in advance.
Learn Bollinger Bands in One Article: How to Use the Three Lines (Upper Band, Middle Band, Lower Band) to Judge Market Trends and Find Trading Opportunities, Plus How to Avoid Pitfalls and Control Risk. The specific content can be divided into these sections:
First, understand the "basic mechanics" of Bollinger Bands: invented by John Bollinger in 1983, the core consists of three lines — the middle band defaults to a 20-day average price, the upper band is the middle band plus 2 times the volatility (standard deviation), and the lower band is the middle band minus 2 times the volatility. The channel formed by these three lines shows price volatility: the wider the channel, the more violent the price swings; the narrower the channel, the closer to a reversal (in 78% of cases, a narrow channel is followed by significant price action). Additionally, the middle band is the "trend dividing line" — when price deviates too far from it, it will likely revert back.
How to read "buy and sell signals":
Trend signals: Price breaks through the middle band with increasing trading volume (more than the 20-day average trading volume), and 3 consecutive K-lines stay above the middle band, this is a reliable uptrend signal; conversely, breaking below the middle band is a downtrend signal.
Reversal signals: The upper and lower bands get very close together (contraction over 20%), like being "squeezed" together, then either volume expands with a break above the upper band or a drop below the lower band, both indicating a reversal is coming, but don't rush on the first breakout — there's a 30% chance it's a false signal, so wait for close confirmation which is safer.
Overbought/oversold signals: Price surges above the upper band, which means "too much buying" (overbought), you can consider selling some; drops below the lower band, which means "too much selling" (oversold), you can try to reduce buying. Moreover, if price stays outside the band for more than 4 K-lines, there's a 68% probability it will revert to the middle band, suitable for short-term scalping.
How to use different trading timeframes:
Short-term (day trading): Watch 15-minute and 1-hour charts, use the 4-hour chart to determine the major direction, set 2% stop loss and 3% take profit, don't be greedy.
Medium-term (swing trading): Watch 4-hour and daily charts, refer to the weekly middle band to judge whether to buy or sell, if the upper and lower bands expand at 45 degrees or more, it indicates a strong trend, you can hold longer.
Long-term: Watch weekly and monthly charts, when all three lines trend upward, buy decisively and hold for at least 3 months; when the monthly band width breaks through the 3-year extreme, it could be a bull market top or bear market bottom, you can accumulate positions in stages.
Don't just look at Bollinger Bands, "partner" it with other indicators: Looking at Bollinger Bands alone is easy to fall into traps, combine it with RSI, MACD, and trading volume. For example, if price makes a new high but RSI doesn't, this is "top divergence" and a decline is coming; when MACD shows a golden cross (buy signal) and price breaks through the middle band simultaneously, the uptrend is more reliable. Additionally, breakout volume must be 2 times or more the 30-day average, otherwise it might be a false breakout.
Risk control is paramount:
Stop loss and take profit: After buying, if price breaks below the middle band, sell immediately, don't hold on; after selling, if price breaks above the middle band, stop loss and exit. You can also sell in stages, for example, sell 30% when price touches the opposite band first, then sell another 40% when it retraces to the middle band.
Leverage usage: When price breaks through the upper or lower band, reduce leverage; when the channel narrows slightly, you can increase it a bit. The larger the leverage, the stricter the stop loss should be, for example, 5x leverage can tolerate at most 1% loss, 20x leverage can only tolerate 0.25% loss, don't exceed 5% of total capital per trade.
Avoid false breakouts: Signals from short timeframes (like 15-minute) should reference the direction of long timeframes (like 4-hour); if price makes a new high but the band hasn't widened, or trading volume hasn't expanded, it could be a false breakout, don't follow blindly.
How to handle special situations:
Extreme market conditions (like price spikes or crashes): Adjust the band width parameter from 2x to 3x to avoid frequent volatility triggering signals; if the band suddenly widens 3x or more within 24 hours, be alert to black swan events, immediately reduce leverage.
Range-bound consolidation (price keeps oscillating): Adjust the middle band period to 10 days for more sensitivity; if price volatility is 20% less than band width with no volume expansion, stay in cash and wait, don't trade carelessly.
Black swan warning: If mainstream coins and Bitcoin bands expand abnormally simultaneously with high correlation, there may be systemic risk, prepare hedging in advance.