Bollinger Bands Trading Strategy: How to Trade it Like a PRO

Bollinger Bands Trading Strategy: How to Trade it Like a PRO

Momentum oscillators and moving averages are of little value during a consolidation because these indicators simply flatten along with price action. Instead, chartists should consider using volume-based indicators, such as the Accumulation Distribution Line, Chaikin Money Flow, the Money Flow Index (MFI) or On Balance Volume (OBV).

The Forex market is the largest and the most liquid market in the world, with 6 trillion dollars worth of transactions performed on a daily basis. If you can master volume analysis, a lot of new trading opportunities can emerge.

This bearish signal does not last long because prices quickly move back above the lower band and proceed to break the upper band. The Bollinger Band Squeeze is a straightforward strategy that is relatively simple to implement. First, look for securities with narrowing Bollinger Bands and low BandWidth levels. Ideally, BandWidth should be near the low end of its six-month range.

By using the volatility of the market to help set a stop-loss level, the trader avoids getting stopped out and is able to remain in the short trade once the price starts declining. Bollinger Bands® adapt dynamically to price expanding and contracting as volatility increases and decreases. Therefore, the bands naturally widen and narrow in sync with price action, creating a very accurate trending envelope.

Yes I do use standard MACD settings to help determine the direction of the market . As you can see, Bollinger Bands offer tremendous help to determine the direction of the market and decide what trading strategy to use.

I never understood / liked Bollinger Bands until now either. But even as swing traders, you can use moving averages as directional filters. The Golden and Death Cross is a signal that happens when the 200 and 50-period moving average cross and they are mainly used on the daily charts. When you are a short-term day trader, you need a moving average that is fast and reacts to price changes immediately.

Vice versa, when the price drops to the lower band, then that would mean that the market is oversold. The chart above shows Lowes Companies (LOW) with the Bollinger Band Squeeze occurring in April 2011. The bands moved to their narrowest range in months as volatility contracted.

Because the Bollinger Band Squeeze does not provide any directional clues, chartists must use other aspects of technical analysis to anticipate or confirm a directional break. In addition to basic chart analysis, chartists can also apply complimentary indicators to look for signs of buying or selling pressure within the consolidation.

Volume Trading Strategy

• Average Directional Index (ADX) values range from 0 to 100, and is intended to give you a signal of trend strength.
• Any subsequent number is the sum of the preceding two numbers in the sequence.
• You may find it is effective to combine indicators using a primary one to identify a possible opportunity, and another as a filter.
• An upside bank break is bullish, while a downside band break is bearish.
• Here is another strategy on how to apply technical analysis step by step.
• See how the parameters affect the signals you get from the indicators, and whether this gives you better entries, or helps you to catch better trends.

As with other indicators, Bollinger Bands are not meant to be used as a stand-alone tool. Chartists should combine Bollinger Bands with basic trend analysis and other indicators for confirmation.

This scan finds stocks that have just moved below their lower Bollinger Band line. This scan finds stocks that have just moved above their upper Bollinger Band line. Chart 4 shows Exxon Mobil (XOM) with an M-Top in April-May 2008.

Moving Average Convergence Divergence (MACD) indicators can be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls. Poorman, I'm glad you were able to take a look my indicator videos.

Here is another strategy on how to apply technical analysis step by step. The Volume Trading Strategy will continue to work in the future because it’s based on how the markets move up and down.

The indicator window shows Chaikin Money Flow weakening in March and turning negative in April. Notice that CMF reached its lowest level since January and continued lower into early May. Negative readings in Chaikin Money Flow reflect distribution or selling pressure that can be used to anticipate or confirm a support break in the stock. The chart below shows Starbucks (SBUX) with two signals within a two-month period, which is relatively rare.

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In general, a move toward the upper band suggests the asset is becoming overbought, while a move close to the lower band suggests the asset is becoming oversold. Since standard deviation is used as a statistical measure of volatility, this indicator adjusts itself to market conditions. It widens as volatility increases, and narrows as volatility decreases.