What Are Bollinger Bands? How to Use Bollinger Bands Effectively in Crypto Trading

rachelbeautybar
Aug 5
3 min read

What Are Bollinger Bands?

Bollinger Bands consist of three lines:

Middle Band → Simple Moving Average (SMA 20)
Upper Band → SMA20 + 2 × Standard Deviation
Lower Band → SMA20 – 2 × Standard Deviation

The upper and lower bands expand and contract based on market volatility.

Candlestick chart with green and red bars in Bollinger Bands. Background is white with light green shading. Text reads "Bollinger Bands."

📈 When volatility increases → Bands widen 📉 When volatility decreases → Bands tighten (squeeze)

Key Takeaways:

Price near upper band → Overbought or strong uptrend
Price near lower band → Oversold or strong downtrend
Price inside bands → Sideways or low volatility

How to Add Bollinger Bands to Your Chart

Open your chart (e.g., TradingView)
Click Indicators
Search “Bollinger Bands”
Apply default settings (20-period SMA, 2 standard deviations)

How Bollinger Bands Work

Bollinger Bands adapt to changing market conditions:

In ranging markets, bands act as dynamic support and resistance
In trending markets, the middle band (SMA 20) acts as a pullback entry zone
In squeeze phases, a breakout is often imminent

Key Bollinger Band Strategies for Crypto

1. Range Trading Inside the Bands

In sideways markets, the upper and lower bands act like boundaries:

📉 Sell when price hits the upper band
📈 Buy when price hits the lower band
📊 Exit at the middle band (SMA 20)

Stock chart with blue Bollinger Bands and orange moving average. Labeled "Buy signal" and "Sell signal" in October and December.

Best for: Scalping or short-term range trades ⚠️ Don’t use this during trending markets—it gives false signals.

2. Bollinger Band Squeeze (Volatility Breakout)

The “squeeze” is one of the most powerful setups.

Bands contract tightly = low volatility
Followed by a strong breakout

How to trade the squeeze:

Identify narrow BB range (tight bands = squeeze)
Wait for breakout candle to close outside the bands
Confirm with volume or tools like Fibonacci or RSI
Enter trade on retest or pullback after breakout

🚀 Strong squeeze breakouts often lead to explosive moves 📌 Use on timeframes like 15m, 1H, or 4H for better confirmation

3. Trend Pullback to Middle Band (SMA 20)

In trending markets, the middle band becomes a dynamic support/resistance:

In an uptrend → Price pulls back to SMA 20, then bounces → Buy
In a downtrend → Price pulls back to SMA 20, then rejects → Sell

📈 Entry = Pullback to SMA 20 🎯 Exit = Upper/Lower band or previous swing 🛑 Stop Loss = Below/Above the SMA 20 rejection candle

Example Strategy: Breakout + Fibonacci Entry

Combine BB squeeze breakout + Fibonacci retracement:

Spot a BB squeeze
Wait for breakout candle with high volume
Draw Fib from candle high to low (if breakout is bullish)
Wait for price to pull back to 0.5 or 0.618 level
Enter trade, target Fib 1.0 – 1.2, stop loss below breakout candle

💡 Works well with high leverage and lower timeframes like M15

Combining Bollinger Bands with Other Indicators

To filter false signals, combine BB with:

Volume: Confirm breakout strength
MACD: Identify momentum shifts
RSI: Check for overbought/oversold zones
Trendlines or Fibonacci: Spot key levels for entry

Tips for Trading with Bollinger Bands

✅ Use Bollinger Bands to identify market structure

✅ Wait for confirmation before entering breakouts

✅ Adjust standard deviation or SMA period for different assets/timeframes

❌ Don’t rely on BB alone in strong trend markets

❌ Avoid entering right after a breakout without volume confirmation

Conclusion

Bollinger Bands are an incredibly powerful tool for crypto traders of all levels. Whether you're scalping ranges, trading breakouts, or riding trends, BB helps you: