Bollinger Bands
A volatility indicator that plots bands around a moving average to show when a crypto asset may be unusually high, low, or entering a volatile period.
Bollinger Bands are a technical analysis tool made of three lines on a price chart: a middle moving average and two outer bands placed a set number of standard deviations above and below it. In crypto markets, these bands expand when price volatility increases and contract when volatility decreases. Traders use them to see whether an asset’s price is relatively high or low compared with its recent range, not to determine its true value.
They matter because they give quick visual context for momentum, volatility, and possible overextended moves. For example, if Bitcoin trades near the upper band, it may suggest strong upward momentum or a short-term overbought condition; if it trades near the lower band, it may suggest weakness or an oversold condition. A “squeeze,” where the bands narrow tightly, can signal that a larger move may be forming, though it does not predict direction. Bollinger Bands are usually used with volume, trend analysis, or other indicators to reduce false signals.
Other terms in Technical Analysis
Bullish Divergence
A bullish divergence is a chart signal where price makes lower lows while an indicator makes higher lows, hinting that selling pressure may be weakening.
Candlestick Chart
A price chart that shows an asset’s open, high, low, and close over repeated time periods.
Fibonacci Retracement
A charting tool that marks possible support and resistance levels based on Fibonacci ratios after a price move.
MACD
A momentum indicator that compares moving averages to help traders spot possible trend changes in a crypto asset’s price.