1. What Are Bollinger Bands?
In cryptocurrency trading, Bollinger Bands are a highly popular technical analysis tool made up of three lines that help assess an asset’s price volatility and potential price trends. The three lines of the Bollinger Bands are as follows:
Middle Band: This is typically a simple moving average (SMA) of the asset’s price, with the 20-day SMA being the most commonly used. It represents the average price level of the asset.
Upper Band: This is calculated by adding two standard deviations to the middle band. Standard deviation measures price volatility, so the upper band reflects the upper limit or high-volatility area of the price.
Lower Band: This is calculated by subtracting two standard deviations from the middle band. The lower band reflects the lower limit or low-volatility area of the price.
The purpose of using Bollinger Bands in cryptocurrency trading is to identify potential entry and exit points, determine whether the market is overheated or oversold, and predict the potential price range. When the price touches the upper band, it may be seen as an overheated market, with prices at a high level—some traders might interpret this as a sell signal. Conversely, when the price touches the lower band, it may be considered an oversold market, with prices at a low level—some traders might see this as a buy signal.
The thickness or width of the Bollinger Bands also provides information about market volatility. When the bands widen, it indicates increased market volatility; when the bands narrow, it signals reduced volatility, which could suggest an upcoming price breakout.
It’s important to note that Bollinger Bands are not an absolute buy or sell signal tool and should be used in conjunction with other technical indicators and market analysis. Given the high volatility and uncertainty of the cryptocurrency market, relying solely on Bollinger Bands for trading decisions can be risky. As a result, traders often combine Bollinger Bands with other indicators (such as the Relative Strength Index [RSI], Moving Average Convergence Divergence [MACD], etc.) to form a more comprehensive and reliable trading strategy.
2. Bollinger Bands Strategy Overview
The Bollinger Bands and Moving Average combination strategy uses Bollinger Bands to generate signals, with moving averages providing secondary confirmation; short at the upper band, long at the lower band.
Entry Conditions
Long entry condition: The closing price touches the lower Bollinger Band, and the short-term moving average is below the long-term moving average.
Short entry condition: The closing price touches the upper Bollinger Band, and the short-term moving average is above the long-term moving average.
Exit Conditions
Long exit condition: The closing price touches the upper Bollinger Band.
Short exit condition: The closing price touches the lower Bollinger Band.
3. Bollinger Bands Parameter Explanation
Leverage Multiplier: The leverage multiple used by the user for investment, mainly for calculating order quantity.
Total Investment Amount: The total amount the user invests, all of which is used as margin.
Auto Stop-Loss Ratio: When the user’s total investment loss reaches this ratio, the strategy will execute a position exit.
Fast MA: Standard MA parameter, required, integer.
Slow MA: Standard MA parameter, required, integer.
Bollinger Band Period: Required, integer.
Bollinger Band Deviation Multiplier: Required, integer.
Period: Standard MA parameter. Required. Options: 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 8 hours, 1 day. Default is 1 hour.
Order Quantity: Number of contracts to be placed when the signal is triggered. Optional; defaults to blank.
Default Contract Fee: 0.00075
Inverse Contract:
s = (Margin ✖️ Latest Price) / (2 ✖️ 0.00075 + (1/Leverage))
size = s / Contract Size
Linear Contract:
s = (Margin) / (2 ✖️ 0.00075 + (1/Leverage)) ✖️ Latest Price
size = s / Contract Size
The actual order quantity placed by the user will be the minimum of the default calculated value and the user-set value.
4. How to Create a Bollinger Bands Strategy?
4.1 Bollinger Bands Strategy Creation Process
Web:
Trading Bot – Create New Bot – CTA – Expert Bot – Bollinger Bands – Backtest – Set Parameters – Create.
Strategy Backtesting: Click the “Backtest” button in the image above. In the next screen, enter the expected parameters, then click the “Backtest” button below the chart. The system will automatically backtest the data (default is within one month). After filling in the relevant parameters, click the Create button to generate a backtest record in “Backtest Records” for your reference.
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