There are many rules to consider when trading with Bollinger Bands. The indicator appears difficult to understand on paper, but when the rules are followed, trading with Bollinger Bands can be both rewarding and easy to understand.
20,2 are just preset default figures - The N-period value of 20 and the K-period of 2 are just presets and the most generic application of Bollinger Bands to a trading system. Depending on the market, manipulating the values within the Bollinger Band makes for smoother or more volatile changes in the indicator and provides a better indicator. For volatile markets, smoothing the indicator with a greater N-value will create a more static Bollinger Band.
Bollinger Bands do not work alone. - This is what most people would tell you, and honestly I don't use Bollinger bands exclusively, but I will say that what you learn on the surface about Bollinger bands is just the beginning. Bollinger bands can in fact be used with incredible precision all by themselves.
Trading with the trend. - When trading with Bollinger bands you will increase your success ratio by taking trades that favor the trend. If price is headed up then take trades where you are bullish. Let the corrections down be your waiting period. Using standard support and resistance lines and pivots in conjunction with Bollinger bands will help you identify excellent entry zones.
It is possible for price to follow one Band - One of my favorite strategies with Bollinger bands is when price follows a band up or down. Rather than reversing price, will actually move up or down with the band and sometimes an explosive fashion. Look to the response of the band to approaching price for a clue on what will happen.
Bollinger Bands work with more traditional technical analysis - Bollinger Bands are great at confirming traditional market patterns. Patterns such as the head and shoulders or double bottoms and tops are easily confirmed by touches to the Bollinger Bands. A double top at the upper range of a Bollinger Band is often a strong sell signal, made stronger by the Bollinger confirmation; this is called confluence and an excellent confirmation tool.
Bollinger bands are an excellent tool when applied to a trading style where trading ranges have been previously identified. Using support and resistance or diagonal trend lines is a nice way to begin to incorporate Bollinger bands into your trading.
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 do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.
Bollinger Bands are lagging indicators and should be traded as such - Bollinger Bands are very much lagging indicators and show movement after the trade occurs. Knowing that Bollinger Bands are lagging will help you to understand why the external deviation lines are not perfect. Again pay special attention to how the "bands" (both of them) react to approaching price for a revelation on where price is headed. In this respect Bollinger bands is as much a perfect tool for trading as it gets.
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. - 16459
20,2 are just preset default figures - The N-period value of 20 and the K-period of 2 are just presets and the most generic application of Bollinger Bands to a trading system. Depending on the market, manipulating the values within the Bollinger Band makes for smoother or more volatile changes in the indicator and provides a better indicator. For volatile markets, smoothing the indicator with a greater N-value will create a more static Bollinger Band.
Bollinger Bands do not work alone. - This is what most people would tell you, and honestly I don't use Bollinger bands exclusively, but I will say that what you learn on the surface about Bollinger bands is just the beginning. Bollinger bands can in fact be used with incredible precision all by themselves.
Trading with the trend. - When trading with Bollinger bands you will increase your success ratio by taking trades that favor the trend. If price is headed up then take trades where you are bullish. Let the corrections down be your waiting period. Using standard support and resistance lines and pivots in conjunction with Bollinger bands will help you identify excellent entry zones.
It is possible for price to follow one Band - One of my favorite strategies with Bollinger bands is when price follows a band up or down. Rather than reversing price, will actually move up or down with the band and sometimes an explosive fashion. Look to the response of the band to approaching price for a clue on what will happen.
Bollinger Bands work with more traditional technical analysis - Bollinger Bands are great at confirming traditional market patterns. Patterns such as the head and shoulders or double bottoms and tops are easily confirmed by touches to the Bollinger Bands. A double top at the upper range of a Bollinger Band is often a strong sell signal, made stronger by the Bollinger confirmation; this is called confluence and an excellent confirmation tool.
Bollinger bands are an excellent tool when applied to a trading style where trading ranges have been previously identified. Using support and resistance or diagonal trend lines is a nice way to begin to incorporate Bollinger bands into your trading.
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 do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.
Bollinger Bands are lagging indicators and should be traded as such - Bollinger Bands are very much lagging indicators and show movement after the trade occurs. Knowing that Bollinger Bands are lagging will help you to understand why the external deviation lines are not perfect. Again pay special attention to how the "bands" (both of them) react to approaching price for a revelation on where price is headed. In this respect Bollinger bands is as much a perfect tool for trading as it gets.
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. - 16459
About the Author:
Most people do not take the time to properly understand and apply Bollinger bands. This indicator alone can, all by itself help you to generate large and consistent profits from the markets. To get started using Bollinger bands the right way visit us at http://www.bollingerbandgenius.com
