There are many possible applications for using Bollinger Bands to decide whether to buy or sell bitcoin.

This indicator is named after its inventor John BollingerWhich analyzed the behavior of prices moving away from or approaching the moving average.

To do this, Bollinger inserted two studied bands, computed as the standard deviation of the simple average of prices, in an attempt to find a way to include prices and contain them within well-defined ranges.

## How do Bollinger Bands work

The two bars, top and bottom, can become the entrance *“Effects”* For the trading strategy: Exiting prices from the bands sets a wave of volatility so that prices must continue in the direction taken or reverse a predetermined path and make a reversal, if the exit from the bands is followed by a sudden re-entry within them.

It is a well-known fact that Bitcoin, the leading cryptocurrency by market capitalization, tends to stay in trend for some time before reversing its course. Based on this structure, Bollinger bands will be used in Follow trend the situation. Thus, it will be necessary to wait for the price to exit the upper band to place buy orders, and to exit the lower band to enter into a sell position.

When working with an indicator, the time frame that must be chosen will also be extremely important. Therefore, there is a great need to compare the most frequently used timeframes, and to make an optimization that will determine the best results.

## How to use Bollinger Bands to buy Bitcoin

By setting the backtest window for the years from August 2017 to the present, that is, the data provided by Binance for instant bitcoin, the results obtained are very different from each other. The fixed volume used is $10,000 per trade.

The time frames chosen vary from 15 minutes to today.

In Figure 2, it can be seen that as the time frame increases, the signals given by Bollinger bands become more effective. In fact, the best cases are obtained with time frames of 480 minutes (4 hours) and 1440 minutes (daily bars).

In descending order: 15 minutes, 30 minutes, 60 minutes, 480 minutes, 1440 minutes

The 15-minute timeframe, the first on the list, is systematically losing out, which is an indication that perhaps the faster the timeframe, the better to work with It means backtracking, unlike the following trend. It is a different matter for the 60 minute to 1440 minute timeframes (i.e. the last 3 in the list in Figure 2) where positive results are observed.

At this point, autofocus arises on the best time frame in many respects, the 480-minute time frame, which in the historical period under study makes a very good profit, with a respectable average trading. The statistical sample, or simply the number of trades, is also higher than the daily time frame, which makes only 33 trades in the historical period under consideration.

Therefore, 480 minutes is chosen as the reference time frame, stop loss and take profit are added which can to some extent protect the account from excessive drawdown.

With a stop loss set at $700 (equivalent to a 7% increase in the value of the position) and a very ambitious take profit (target) at $10,000, this yields the results shown in Figures 3 and 4.

The profit curve is sloping upwards and the average trade is above $400, which is a very good 4% on the corresponding price of the trade.

## Make predictions on bitcoin

In conclusion, we saw how Bollinger bands can also be used on Bitcoinbecause they are able to identify, in the most appropriate time frames, the starting points of a market trend that can be used as entry triggers for setting trading strategies.

However, there is still some doubt about the stability of the results, since as the time frame has changed, the profits earned by the system have changed, to say the least. While it is undeniable that movements have become tighter as the time frame decreases, it is appropriate to put the strategy to the test of time by allowing it to work on out-of-sample data in order to fully evaluate it.

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