Bollinger Bands are technical indicators used in trading. They were developed by John Bollinger a long time ago and up until now it’s still one of the most used indicators Investing Tips among traders.
Bollinger Bands can help you predict the trend direction as well as Global Trading Platform spot potential reversals and monitor volatility. Like many other indicators, if used right, Bollinger Bands can help you make informed and correct trading decisions.
When you’re using Bollinger Bands, you will have to deal with three lines: the upper, middle, and lower.
The middle line is moving average. You will choose the parameters of this moving average. You have to adjust this appropriately so that it will complement the techniques that will be discussed below.
The upper and lower bands are charted on either side of the moving average. You will have to use standard deviations to measure the distance between the upper and the lower bands. You will also have to decide how many standard deviation you want to set the indicator at.
Day Trading with Bollinger Bands during Uptrends
One benefit of using Bollinger Bands is that it can tell you how strongly your asset is moving up or rising—during an uptrend. Using them can also tell you if the asset will soon experience a reversal or will lose some strength.
Typically, the price in a strong uptrend will touch or run near the upper band during impulse waves. However, if you don’t see this, the uptrend may be having less and less momentum.
Also, there are pullbacks in an uptrend. A pullback happens when a price of an asset falls for some time. If there’s an uptrend and the price is moving strongly, then pullback lows can certainly occur near or above the middle line or the moving average line. The pullback does not necessarily have to stall out near the moving average line. However, if it does, it indicates strong momentum.
When the price is in a strong uptrend, you should expect it not to touch the lower band. If you see that it does, then you should take it as a sign of a reversal.
Day Trading with Bollinger Bands during Downtrends
Bollinger Bands also help you assess how strongly an asset is declining. During a downtrend, Bollinger Bands can also tell you when the price is starting to move up or reversing.
During a downtrend, the price tend to hover near or along the lower band every time there’s an impulse wave lower. If it does not, then that may be a sign that the downtrend is losing momentum.
There are also pullbacks during a downtrend. If the movement of the price is strong, then you can expect the pullbacks to occur near or below the moving average line. Again, the pullback shows a selling strength if it stalls near the middle line.
You can expect a reversal is the prices hit the upper band.
Bollinger Bands are one of the many indicators that you can use to help you in your trading decisions. Further, there are other indicators that you should take a look at, like oscillators and moving averages. Keep using these indicators and develop insights from the market.