Bollinger Bands are a volatility indicator. They are a set of curves plotted a certain number of standard deviations from the simple moving average (SMA) of the coin’s price. The bands widen in periods of high volatility, and vice versa.When the price of a coin is within a specified distance of a band, this triggers a buy/sell signal. An illustration of this is shown below.
Example parameter values
Time Resolution: 1 hour
SMA Length: 20
Number of standard deviations: 2
Percent Difference From Bands: 0.01%
- Time Resolution: This is the time window for each period being analyzed. If this is chosen as 1 hour, and the SMA Length is 20, then the indicator will use a simple moving average of the last 20 1-hour periods. If it is instead chosen as 1 day, and the SMA Length remains at 20, then the indicator will use 20 1-day periods in the SMA.
- SMA Length: This is the number of time periods used to compute the SMA. If the SMA Length is 20, and the Time Resolution is 1 hour, then the indicator will use a 20 1-hour periods in the SMA.
- Number of standard deviations for Bollinger Bands: This is the number of standard deviations away from the SMA to plot the Bollinger Bands. For example, if the number of standard deviations chosen is 2, then the Bollinger Bands will be 2 standard deviations away from the SMA.
- Percent Difference from Bollinger Bands for buy/sell signal: When the coin price moves within a given percentage (of a Bollinger Band), this creates a buy/sell signal. For example, if this is chosen as 0.01%, then when the market price moves within 0.01% of the lower band, this generates a buy signal, and when it moves within 0.01% of the upper band, this generates a sell signal.