Keeping It Super Simple: Double Bollinger Bands

27 בפבר׳ 2020

Keeping It Super Simple: Double Bollinger Bands
DISCLAIMER: The idea below is just that: an idea. I welcome feedback as related to this particular idea.

What can Bollinger Bands help with?

Bollinger Bands are a great way for me to visualize the area in which a price for a particular coin is trading in. The key take away about bollinger bands, in my opinion, is it visualizes upper and lower prices relative to the current price. There is fancy math on how we arrive here but that's not my side of the street. My side is using this to help better translate what that market is trying to tell me. With Bollinger Bands, it tells me "this area you should feel comfortable seeing the price move around in".


Why is that important?

I trade better when I feel comfortable and I feel comfortable when I have information that will best lead me to a place where surprising market conditions are of little concern due to the preparedness my trades have from various bits of incomplete information. Now that we have an idea of what the ceiling and floors look like, how can we gain profit on that information?


Double Bollinger Band Settings and Setup

While there is no end all, be all indicator or setup, making use of double bollinger bands in a ranging market can be extremely useful. While the default setup for bollinger bands on TradingView is (20,2) I have changed the settings to (20, 2.5) when trading cryptocurrency. Due to it's unregulated, always on market I have added in an extra 0.5 to the standard deviation when calculating the upper and lower barriers. Most candles now fall within the limits nicely with only strong moves now breaking out. From there adding another bollinger band indicator with the settings (20, 1.25 to .75). The range I play with until I see past candles tapping on the upper and lower parts of the channel like it is resistance and support.


What does Double Bollinger Bands provide?

The area between the bottom inner channel and the bottom barrier is the buy zone. Personally, I spread multiple orders down this area and beyond the barrier in the event of a strong move breaking through. Once the orders begin to fill, I spread multiple orders from the top of the inner channel to the top barrier and beyond in the event of a strong move breaking through. As long as the price continues to weave from above the inner channel to below the inner channel, range trading can occur.


Other Uses

Another use of DBB is trend analysis. When the inner channel becomes support or resistence, the coin has entered into a trend. This can be seen as the price continues to move it will not cross the inner channel until the trend has reversed or the market goes sideways. That is the signal I use to indicate a go ahead for range trading: when the price crosses the inner channel, stays within the top barrier and retraces to the other channel and bounces within the barrier.