Several traders will pledge that only trading on Bollinger bands strategy is the path to their victory.
Bollinger bands put in a nutshell the price movement of a stock. It gives relative limits of highs and lows. The core of the Bollinger band indicator is based on a moving average that defines the intermediate-term “trend” of the stock based on the time frame for stocks trading you are viewing.
The middle band is the name of this trend indicator. 20 day-period moving average is used mostly to apply Bollinger band strategy. Price fluctuation is determined by the range set by upper and lower band for upside and downside. They are calculated as two standard deviations from the middle band.
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Lots of you have got to know of famous technical analysis patterns such as shoulders top or bottom, double bottoms, symmetrical triangles, ascending triangles, head, and double tops, etc. The Bollinger bands indicator can append that additional small piece of firepower to your analysis by evaluating the possible strength of these patterns.
Bollinger bands can help you recognize whether or not the stock is in trend or not, or even if it is having probable movement enough for your investment. Sometimes when trading with Bollinger bands, you will see the bands coiling closely which shows the stock is trading in a slim range.
Bollinger band
This coiling action is the cause to watch out for a price breakout or breakdown. Numerous times, large rallies begin from low volatility ranges. When this happens, it is referred to as “building cause.”
a) Double Bottoms and Bollinger Bands
The primary bottom of this arrangement is likely to have considerable volume and a quick price recoil that closes outside of the lower Bollinger band. These types of moves usually lead to what is called an “automatic rally.” The high of the automatic rally tends to provide the primary level of resistance in the base building process that arise prior to the stock moves higher.
After the rally initiate, the price tries to retest the latest lows that have been set to test the strength of the buying pressure that came in at that bottom.
b) Reversal with Bollinger Bands
Yet another successful trading way is fading stocks when they initiate printing outside of the bands. Now, let’s proceed one step ahead and apply a little candlestick analysis to this strategy. If the stock gaps up and then close up next to its low and is still totally outside of the Bollinger bands, this is often an excellent indicator that the stock will correct on the near-term.
c) Riding the bands
The only major mistake that lots of Bollinger band beginners make is that they sell the stock when the price reaches the upper band or buy when it touches the lower band. Bollinger himself declared that a contact of the upper band or lower band does not represent Bollinger band signals of buy or sell.
