There are quite a few rules to understand when mastering Bollinger bands. To read through a rule set may seem a bit intimidating at first, but rest assured that the end result is greater accuracy and a better feel for price direction. You will find them easy to use and incredibly accurate.
20 periods and 2 standard deviations are default values only. - These periods of 20 and 2 are kind of like the "average" values one might consider. If you plan on using Bollinger bands and using multiple time frames then plan on adjusting your period value. The standard deviation of 2 is the same in any time frame but the period will need to be adjusted for many reasons.
Bollinger bands do not work alone. - This is what most people would have you believe, but I'm here to tell that an effective Bollinger band strategy can trade with the bands exclusively with incredible results. I do use other indicators but only as confirmation tools and tools for perspective. Bollinger bands work well alone provided you understand how to read them correctly.
Stick with the trend. - It goes without saying that you ought to wait for a signal ands trigger in favor of the trend. Trading opposite the trend should be left to expert traders only. Use pivots and support and resistance to identify trend and direction, and take the triggers in favor of the trend.
Climbing or falling with the bands. - In the text books it is presented that price will hit a band and revert to the mean, and while this is true a lot of times, very often price and the band will continue in the opposite direction following the bands. This is an incredible trading opportunity for the trader that understand the explosive possibilities of following the bands.
Bollinger bands work well alone, but applying the magic of Bollinger bands with other forms of technical analysis is a sure way to send your results skyrocketing. Take for example a nice head and shoulders top. A great high profit, highly probable formation. Combine that with the final shoulder penetrating the upper Bollinger band and you have yourself an excellent point of entry.
Bollinger Bands set great price targets - Many investors use the 50, 100, and 200 period moving averages to calculate price targets. Bollinger Bands can be used in just the same way. When price bounces off the top range and crosses the center line, the next move is likely to the lower line. Consider the bands for profit targets.
Bollinger bands has just 2 values to set. The first is the N value, the second, K value is the standard deviation. 2 standard deviations is pretty common and works rather well in all timeframes. I like to set-up a 2.0, 2.5, and 3.0 standard deviation one on top of the other. As far as the N value 10 is the absolute minimum. This is the look-back period and anything less than 10 is just noise.
Bollinger bands are not necessarily perfect for short trend and high volatility. Bollinger bands does measure and display high volatility it is not as effective on a 1to 5 minute chart as it is on say a 15 minute or hourly chart. Shorter term charts can experience volatility spikes that Bollinger bands may not signal.
It's true that Bollinger bands is a lagging indicator. It's also true that the Bands move after price and not before. One thing that most people don't understand is that a close look at how the bands respond to price as it approaches is the key to making a killing with Bollinger bands.
Bollinger band width. The width of the bands is important. I use 3 set of bands personally. 2.0, 2.5 and 3.0 standard deviations on every time frame I trade. this allows me to see the extreme nature of the move or potential reversal. Using high probability candlestick patterns with band width is an excellent tool for identifying entry.
20 periods and 2 standard deviations are default values only. - These periods of 20 and 2 are kind of like the "average" values one might consider. If you plan on using Bollinger bands and using multiple time frames then plan on adjusting your period value. The standard deviation of 2 is the same in any time frame but the period will need to be adjusted for many reasons.
Bollinger bands do not work alone. - This is what most people would have you believe, but I'm here to tell that an effective Bollinger band strategy can trade with the bands exclusively with incredible results. I do use other indicators but only as confirmation tools and tools for perspective. Bollinger bands work well alone provided you understand how to read them correctly.
Stick with the trend. - It goes without saying that you ought to wait for a signal ands trigger in favor of the trend. Trading opposite the trend should be left to expert traders only. Use pivots and support and resistance to identify trend and direction, and take the triggers in favor of the trend.
Climbing or falling with the bands. - In the text books it is presented that price will hit a band and revert to the mean, and while this is true a lot of times, very often price and the band will continue in the opposite direction following the bands. This is an incredible trading opportunity for the trader that understand the explosive possibilities of following the bands.
Bollinger bands work well alone, but applying the magic of Bollinger bands with other forms of technical analysis is a sure way to send your results skyrocketing. Take for example a nice head and shoulders top. A great high profit, highly probable formation. Combine that with the final shoulder penetrating the upper Bollinger band and you have yourself an excellent point of entry.
Bollinger Bands set great price targets - Many investors use the 50, 100, and 200 period moving averages to calculate price targets. Bollinger Bands can be used in just the same way. When price bounces off the top range and crosses the center line, the next move is likely to the lower line. Consider the bands for profit targets.
Bollinger bands has just 2 values to set. The first is the N value, the second, K value is the standard deviation. 2 standard deviations is pretty common and works rather well in all timeframes. I like to set-up a 2.0, 2.5, and 3.0 standard deviation one on top of the other. As far as the N value 10 is the absolute minimum. This is the look-back period and anything less than 10 is just noise.
Bollinger bands are not necessarily perfect for short trend and high volatility. Bollinger bands does measure and display high volatility it is not as effective on a 1to 5 minute chart as it is on say a 15 minute or hourly chart. Shorter term charts can experience volatility spikes that Bollinger bands may not signal.
It's true that Bollinger bands is a lagging indicator. It's also true that the Bands move after price and not before. One thing that most people don't understand is that a close look at how the bands respond to price as it approaches is the key to making a killing with Bollinger bands.
Bollinger band width. The width of the bands is important. I use 3 set of bands personally. 2.0, 2.5 and 3.0 standard deviations on every time frame I trade. this allows me to see the extreme nature of the move or potential reversal. Using high probability candlestick patterns with band width is an excellent tool for identifying entry.
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