Bollinger Bands for Beginners: A Trading Guide
Bollinger Bands are a prominent technical indicator for trading. John Bollinger invented this method in the 1980s, and traders of all levels use it.
Bollinger Bands?
Bollinger Bands depict volatility using a simple moving average (SMA) with two standard deviation lines above and below it. The standard deviation lines react to market volatility, showing price volatility dynamically.
Market volatility widens the bands, whereas stability contracts them. The objective is that prices remain inside the upper and lower bands, creating a channel for buying and selling opportunities.
Bollinger Band Interpretation
Bollinger Band analysis requires many considerations:
Prices inside the bands indicate a probable continuation of the trend.
Price approaching upper band: Prices nearing the top band may suggest an overbought market and a turnaround.
Price approaching lower band: Prices nearing the lower band may suggest an oversold market and a turnaround.
Band squeezing: Low volatility and possible volatility growth are indicated by band squeeze.
Bollinger Bands are often used with other technical indicators or chart patterns to help traders make choices.
Trading Strategies using Bollinger Bands
Several Bollinger Band trading methods are popular:
Bollinger Squeeze: This approach forecasts a breakout with low volatility, represented by band contraction. The breakout direction may be traded.
Bollinger Breakout: A substantial breakout above or below the bands indicates a trend reversal or continuance. Trading might occur in the breakout direction.
Bollinger Reversal: Price touching the upper or lower band indicates a reversal. Traders may go against the trend.
Beginners should use Bollinger Bands as part of a trading strategy, not as separate indicators.
Conclusion
Beginners may use Bollinger Bands to spot market buy and sell opportunities. However, no indication is perfect, therefore it’s best to combine many indicators and analyze them before trading.
References: – Wikipedia – https://en.wikipedia.org/wiki/Bollinger_Bands