Intraday trading using bollinger bands

The indicator forms a channel around the price movements of an asset. The channels are based on standard deviation and a moving average. Bollinger bands can help you establish trend direction, spot potential reversals and monitor volatility. All this can help you make better trading decisions if you follow a few simple guidelines.

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Bollinger bands have three lines--an upper, middle and lower. There is no magic moving average number; set the moving average so it aligns with the techniques discussed below.

The upper and lower bands are drawn on either side of the moving average. The distance between the upper and lower band is determined by standard deviations.

The trader determines how many standard deviations they want the indicator set at. There is no magic number here either. Choose a setting which aligns with the techniques below, for the asset being traded. The attached chart shows a 1-minute crude oil futures chart with Bollinger Bands. Trendlines have been drawn to show the trend direction based on Bollinger Band guidelines discussed below. Bollinger bands help assess how strongly an asset is rising uptrend , and when the asset is potentially losing strength or reversing.

This information can then be used to help make trading decisions. Here are three guidelines for using Bollinger Bands in an uptrend.

Read the "Issues" section below for occasions when Bollinger Bands tend not to provide reliable information. Bollinger bands help assess how strongly an asset is falling downtrend , and when the asset is potentially strengthening to the upside or reversing.

Here are three guidelines for using Bollinger Bands in a downtrend. Using the guidelines for trends discussed above, here are the summary guidelines for spotting reversals. Alter the settings so that when you look at historical charts you can see that the Bollinger Bands would have helped you. If the Bollinger Bands don't help you as discussed above then change the settings or don't use the bands to trade that particular asset.

Ideal Bollinger Bands setting vary from market to market, and may even need to be altered over time even when trading the same instrument.

Once the indicator is set up and seemingly working well, there will still be periods where the indicator has a tendency to produce false signals. During low volatility times, the bands will contract, especially if the price is moving sideways. During such times the price may bounce off both the upper and lower band.

In this case, it isn't necessarily a reversal signal, though. The narrow bands are just closer to the price and thus likely to be touched. Bollinger Bands aren't a perfect indicator; they are a tool.

They don't produce reliable information all the time, and it's up to the trader to apply band settings that work most of the time for the asset being traded. The Bollinger Bands indicator is just a tool. It has flaws, and won't produce reliable signals all the time. It can help you stay on the right side of trend and spot potential reversals, though.

For that, you'll need to set up the indicators so they align with the guidelines discussed above. Random or default setting on the indicator may not work well. Adjust the indicator and test it out before using the indicator for live trades.

The guidelines above are not a trading strategy on their own.

Short Term Trading With Bollinger Bands

Bollinger Bands can be combined with a trading strategy, though, such as the day trading stocks in two hours method. Search the site GO. Day Trading Technical Indicators Basics Trading Systems Trading Psychology Trading Strategies Stock Markets Risk Management Forex Options Glossary. Updated October 13, Final Word The Bollinger Bands indicator is just a tool.

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