![]() ![]() This is done to ensure that at least 85% of the price data will be moving in between these two bands, but the settings may be adjusted according to different needs and trading strategies.Īlthough the Bollinger Bands are widely used in traditional financial markets, they may also be used for cryptocurrency trading setups. The setting acknowledges a 20-day period and set the upper and lower bands to two standard deviations (x2) away from the middle line. Lower band: 20-day SMA - (20-day standard deviation x2) Upper band: 20-day SMA + (20-day standard deviation x2) Middle line: 20-day simple moving average (SMA) ![]() The standard settings for the Bollinger Bands indicator would look like this: The standard Bollinger Bands formula sets the middle line as a 20-day simple moving average (SMA), while the upper and lower bands are calculated based on the market volatility in relation to the SMA (which is referred to as standard deviation). The two sidelong bands react to the market price action, expanding when the volatility is high (moving away from the middle line) and contracting when volatility is low (moving towards the middle line). More specifically, it is composed of an upper band, a lower band, and a middle moving average line (also known as the middle band). ![]() The main idea behind the BB indicator is to highlight how prices are dispersed around an average value. It indicates whether the market has high or low volatility, as well as overbought or oversold conditions. Basically, the Bollinger Bands work as an oscillator measurer. They are broadly used as an instrument for technical analysis (TA). So instead of relying on one or another, a contextualized and balanced use of the two sounds more reasonable.The Bollinger Bands (BB) were created in the early 1980s by financial analyst and trader John Bollinger. Most traders and investors probably agree that both FA and TA are valuable in their own way. While FA seeks to determine the real value of a trading asset, TA is used as a tool to predict the price action based on trading volume and past trends. While fundamental analysis looks to a larger picture around the price of an asset - considering as many influencing factors as possible - TA is strictly focused on historical market data and market charts. In other words, FA is a method that may help to determine whether or not something is valued too high or too low.ĭespite being traditionally used to value stocks, fundamental analysis is applicable to nearly all kinds of assets, including cryptocurrencies.įundamental analysis vs. Ultimately, their goal is to come up with a quantitative price that can be compared against the actual price of the respective asset. These considerations focus on less tangible and more qualitative aspects, such as a company's leadership and how those leaders have performed in other business ventures in the past.įundamental analysis also seeks to better understand the industry-specific market and the future potential of a product or service in that market. Therefore, we may consider that FA seeks to determine how external factors can affect the performance of a company or project - especially those factors that aren't immediately apparent. It takes into account both microeconomic and macroeconomic conditions that may have an effect on that particular market. The goal of fundamental analysis is to determine whether or not the price of an asset is overvalued or undervalued.įundamental analysis works on the understanding that the future potential of an asset should be based on more than just prior performance. Fundamental analysis (FA) is a method used by investors and traders in financial markets to assess the intrinsic value of an asset or business by examining as most qualitative and quantitative factors as possible, such as company management and reputation, industry health, market capitalization, and other economic factors. ![]()
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