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Finance Day Trading How To Unleash The Magic Of Bollinger Bands
Finance Day Trading How To Unleash The Magic Of Bollinger Bands
| How To Unleash The Magic Of Bollinger Bands |
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| Written by Mark Deaton |
| Saturday, 03 January 2009 10:39 |
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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 and 2 are just the default values - These periods are just a starting point. Yes they are effective, but adjustments will need to be made as you change timeframes. Your period (20) and standard deviation (2) will need to be smoothed or not directly related to the timeframe you are trading. For highly volatile markets consider making an adjustment to your period (20). Bollinger bands need other confirmation. - I say BS, Bollinger bands are about the only tool / indicator I would ever consider using exclusively. I don't use them exclusivey, only because I don't have to. Truth be told Bollinger bands are just about the only indicator i would ever consider using exclusively. With a good understanding of Bollinger bands you don't need anything else. The trend is your friend - Bollinger Bands work exceptionally well with trading ranges that have already been identified by a trader utilizing trend line techniques to form trading ranges. Using trend lines with a Bollinger Band system has proven to be highly profitable and predictable. Following the bands. - Yes, rather than revert to the mean price will often gravitate to either band and head in that direction aggressively. This is one of the huge profit potential zones Bollinger bands offers. For clues on whether price will reverse or follow the bands with the band reaction as price approaches. Bollinger bands are an excellent tool when used with other forms of technical analysis. If you are looking at other chart patterns or formations use Bollinger bands and the reversion to the mean in conjunction with the pattern for better accuracy. For example a bullish patterns penetrating the lower band(s) can together give you near perfect entry. 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. N-Values of less than 10 are not recommended - Because the Bollinger Band is based on a moving average calculation, an N-period value of less than 10 becomes ineffective. Short term moving averages follow price too closely and do not offer a viable trading range due to the tight formation of the Bands. 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. Bollinger bands do not predict the future. In fact Bollinger bands are providing you with information only after price and not before. That said, the secret in trading Bollinger bands is your ability to understand and respond to Bollinger band signals as price approaches the bands. Watch closely how Bollinger bands responds to approaching price for clues on how to make the best trades. Bollinger band width refers to deviations from the mean. The mean is the average. The default setting is usually 2.0 standard deviations and that's fine. Price will trade within the 2.0 standard deviation range approximately 90% of the time. I like to lay down an additional 2.5, and 3.0 standard deviation right over my 2.0. Combining candlestick pattern analysis with these entry zones makes for a good system. 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 cash-flow from any market. To get started using Bollinger bands the right way visit us at http://www.bollingerbandgenius.com Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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