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.
Stick with the trend. - It goes without saying that you ought to wait for a signal ands trigger in favor of the trend. Trading opposite the trend should be left to expert traders only. Use pivots and support and resistance to identify trend and direction, and take the triggers in favor of the trend.
Climbing or falling with the bands. - In the text books it is presented that price will hit a band and revert to the mean, and while this is true a lot of times, very often price and the band will continue in the opposite direction following the bands. This is an incredible trading opportunity for the trader that understand the explosive possibilities of following the bands.
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.
The N value in Bollinger band settings represents the look-back period. Any setting less than 10 is not recommended. A setting less than 10 is going to give you results that are basically equal to price action. Short term time frames require an N period adjustment, but not less than 10. Consider an N period of 13 for intraday charts and the standard 20 N period for daily charts.
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.
It's true that Bollinger bands is a lagging indicator. It's also true that the Bands move after price and not before. One thing that most people don't understand is that a close look at how the bands respond to price as it approaches is the key to making a killing with Bollinger bands.
Bollinger Band width is important too - Often forgotten, the width of the Bollinger Band does serve some importance to trading, especially in the realm of reversals and changes in direction. Mixing candlestick analysis with contractions in the Band width is a great way to trade reversals. - 16463
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.
Stick with the trend. - It goes without saying that you ought to wait for a signal ands trigger in favor of the trend. Trading opposite the trend should be left to expert traders only. Use pivots and support and resistance to identify trend and direction, and take the triggers in favor of the trend.
Climbing or falling with the bands. - In the text books it is presented that price will hit a band and revert to the mean, and while this is true a lot of times, very often price and the band will continue in the opposite direction following the bands. This is an incredible trading opportunity for the trader that understand the explosive possibilities of following the bands.
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.
The N value in Bollinger band settings represents the look-back period. Any setting less than 10 is not recommended. A setting less than 10 is going to give you results that are basically equal to price action. Short term time frames require an N period adjustment, but not less than 10. Consider an N period of 13 for intraday charts and the standard 20 N period for daily charts.
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.
It's true that Bollinger bands is a lagging indicator. It's also true that the Bands move after price and not before. One thing that most people don't understand is that a close look at how the bands respond to price as it approaches is the key to making a killing with Bollinger bands.
Bollinger Band width is important too - Often forgotten, the width of the Bollinger Band does serve some importance to trading, especially in the realm of reversals and changes in direction. Mixing candlestick analysis with contractions in the Band width is a great way to trade reversals. - 16463
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If you are not familiar with how to use Bollinger bands, you are absolutely missing important trading opportunities. For a complete resource on exactly How To trade with Bollinger bands, visit us at http://www.bollingerbandgenius.com
