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John Bollinger

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May 12,  · Bollinger bands are one of the most popular technical indicators for traders in any financial market, whether investors are trading stocks, bonds or foreign exchange (FX). Many traders use Bollinger bands to determine overbought and oversold levels, selling when price touches the upper Bollinger band and buying when it hits the lower Bollinger band. Jun 14,  · by Boris Schlossberg Bollinger bands are one of the most popular technical indicators for traders in any financial market - stocks, bonds or foreign exchange (FX).

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Jun 14,  · by Boris Schlossberg Bollinger bands are one of the most popular technical indicators for traders in any financial market - stocks, bonds or foreign exchange (FX).

A tag of the upper Bollinger band is not in and of itself a sell signal. A tag of the lower Bollinger band is not in and of itself a buy signal".

Price often can and does "walk the band". In those markets, traders who continuously try to "sell the top" or "buy the bottom" are faced with an excruciating series of stop-outs or worse, an ever-mounting floating loss as price moves further and further away from the original entry.

Perhaps a more useful way to trade with Bollinger bands is to use them to gauge trends. To understand why Bollinger bands may be a good tool for this task we first need to ask - what is a trend? Like many clichés this one contains a good amount of truth since markets mostly consolidate as bulls and bears battle for supremacy. Market trends are rare, which is why trading them is not nearly as easy as it seems. Looking at price this way we can then define trend as deviation from the norm range.

The Bollinger band formula consists of the following: This is the reason why they can be very helpful in diagnosing trend. By generating two sets of Bollinger bands - one set using the parameter of "1 standard deviation" and the other using the typical setting of "2 standard deviation" - we can look at price in a whole new way.

One of the other great advantages of Bollinger bands is that they 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. A Tool for Trend Traders and Faders Having established the basic rules for Bollinger band "bands", we can now demonstrate how this technical tool can be used by both trend traders who seek to exploit momentum and fade traders who like to profit from trend exhaustion.

They would then be able to stay in trend as the Bollinger band "bands" encapsulate most of the price action of the massive up-move.

What would be a logical stop-out point? The reason for the second condition is to prevent the trend trader from being "wiggled out" of a trend by a quick probative move to the downside that snaps back to the "buy zone" at the end of the trading period. Note how in the following chart the trader is able to stay with the move for most of the uptrend, exiting only when price starts to consolidate at the top of the new range.

In range-bound markets, this technique works well, as prices travel between the two bands like balls bouncing off the walls of a racquetball court. However, Bollinger bands don't always give accurate buy and sell signals. This is where the more specific Bollinger band "bands" come in.

Let's take a look. A tag of the upper Bollinger band is not in and of itself a sell signal. A tag of the lower Bollinger band is not in and of itself a buy signal". Price often can and does "walk the band". In those markets, traders who continuously try to "sell the top" or "buy the bottom" are faced with an excruciating series of stop-outs or worse, an ever-mounting floating loss as price moves further and further away from the original entry.

Perhaps a more useful way to trade with Bollinger bands is to use them to gauge trends. To understand why Bollinger bands may be a good tool for this task we first need to ask - what is a trend? Like many clichés this one contains a good amount of truth since markets mostly consolidate as bulls and bears battle for supremacy. Market trends are rare, which is why trading them is not nearly as easy as it seems.

Looking at price this way we can then define trend as deviation from the norm range. The Bollinger band formula consists of the following: At the core, Bollinger bands measure deviation.

This is the reason why they can be very helpful in diagnosing trend. By generating two sets of Bollinger bands - one set using the parameter of "1 standard deviation" and the other using the typical setting of "2 standard deviation" - we can look at price in a whole new way.

One of the other great advantages of Bollinger bands is that they 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. A Tool for Trend Traders and Faders Having established the basic rules for Bollinger band "bands", we can now demonstrate how this technical tool can be used by both trend traders who seek to exploit momentum and fade traders who like to profit from trend exhaustion.

They would then be able to stay in trend as the Bollinger band "bands" encapsulate most of the price action of the massive up-move.

Stock Market Analysis

In the chart below, we see that a fade trader using Bollinger band "bands" will be able to quickly diagnose the first hint of trend weakness. These indicators produce similar lines and signals, but the lines are calculated differently.

Closed On:

Price charts simply express trader sentiment and double tops and double bottoms represent a re-testing of temporary extremes. Their function, then, is to determine the highest probability for a point of failure.

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