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Bands_Trading_with different startegies

Bollinger Bands, created by John Bollinger, are a technical analysis tool that measures stock price volatility using three lines: upper, middle, and lower bands based on a moving average. The document outlines five trading strategies utilizing Bollinger Bands, including reversals, the M&M Choco strategy, riding the bands, predicting squeezes, and combining with moving averages or MACD. Overall, Bollinger Bands help traders identify potential entry and exit points and assess market conditions.

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11 views

Bands_Trading_with different startegies

Bollinger Bands, created by John Bollinger, are a technical analysis tool that measures stock price volatility using three lines: upper, middle, and lower bands based on a moving average. The document outlines five trading strategies utilizing Bollinger Bands, including reversals, the M&M Choco strategy, riding the bands, predicting squeezes, and combining with moving averages or MACD. Overall, Bollinger Bands help traders identify potential entry and exit points and assess market conditions.

Uploaded by

pegarank
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Bolinger Band

A potent technical indicator, Bollinger Bands were created by John Bollinger.


The bands, which show relative highs and lows, capture the movement of a
stock's price. The intermediate-term "trend" is defined by the moving average,
which is the foundation of the Bollinger Band indicator, depending on the time
frame you're examining.
But how can we use this indication in trading, and what are the effective
approaches?
We'll provide you a thorough knowledge of the bands in this post, along with
five different trading methods you can try out to determine which suits your
trading style the best.

What are Bollinger Bands?


Bollinger Bands are a technical analysis tool for stock trading developed by
John Bollinger in the 1980s. The bands are part of a volatility indicator that
calculates the relative high and low of a security’s price in relation to
previous trades.

Volatility is measured using standard deviation, which changes


as volatility rises or falls. When the price rises, the bands widen, and when
the price falls, the bands narrow. Bollinger Bands can be used to trade
various securities due to their dynamic nature.

Bollinger Bands are made up of three lines: upper, middle, and lower. The
middle band is a moving average, and the trader determines its
parameters. The upper and lower bands are on opposite sides of the
moving average band.

The trader determines how many standard deviations the volatility


indicator should be set. The number of standard deviations determines the
distance between the middle band and the upper and lower bands. The
position of these bands indicates the trend’s strength and the potential high
and low price levels that can be expected in the near future.

How to trade with Bollinger Bands?


1. Reversals
Fading stocks when they start printing outside of the bands is a simple but
effective trading strategy. We’ll take it a step further and incorporate some
candlestick analysis into this strategy.

For example, rather than shorting a stock as it approaches its upper band
limit, wait to see how it performs. If the stock goes parabolic or gaps up
and then closes near its low while trading near the outside of the bands, it
is often a good indicator that the stock will correct in the near term.

Then, depending on where the stock finds support, you can enter a short
position with three target exit areas: (1) the upper band, (2) the middle
band, or (3) the lower band

2. M&M Choco Strategy


A double bottom setup is a common Bollinger Band strategy.

This formation’s first bottom is characterised by high volume and a sharp


price pullback that closes outside of the lower Bollinger Band. These kinds
of moves usually result in what is known as an “automatic rally.” The
automatic rally’s high usually serves as the first level of resistance in the
base-building process before the stock moves higher.

After the rally begins, the price attempts to retest the most recent lows in
order to test the strength of the buying pressure that came in at that
bottom.

This retest bar should print inside the lower band, according to many
Bollinger Band technicians. This indicates that the stock’s downward
pressure has subsided and that there is a shift from sellers to buyers. Pay
close attention to the volume as well; it should drop dramatically.

3. Riding the Bands


Many Bollinger Band newcomers make the same mistake: they sell when
the price reaches the upper band and buy when it reaches the lower band.
According to Bollinger, a touch of the upper or lower band does not
constitute a buy or sell signal.

Look at the example below and notice how the bands tighten just before
the breakout. To return to an earlier point, price penetration of the bands
cannot be used to justify shorting or selling a stock.
Take note of how the volume exploded on the breakout and the price
began to trend outside of the bands; these can be extremely profitable
setups if given enough room to fly.

4. Bollinger Band Squeeze


Another trading strategy is to predict when a squeeze will begin. Using
daily charts, the idea is that when the indicator reaches its lowest level in 6
months, volatility will rise. This relates to the tightening of the bands we
mentioned earlier. The Bollinger Band indicator’s squeezing action
frequently foreshadows a large move.
Additional indicators, such as volume expanding or the accumulation
distribution indicator rising, can be used. These additional indicators add to
the evidence of a possible Bollinger Band squeeze.

We need an advantage when trading a Bollinger Bands squeeze because


these setups can fool even the most experienced traders.

5. Middle Bands
The middle band is configured in many charting applications as a 20-
period simple moving average.

When the stock is riding the bands, the middle line can represent areas of
support on pullbacks. When the price returns to the middle line, you could
increase your stock position.

n terms of determining when a trend is losing steam, failure of the stock to


continue to accelerate outside of the bands indicates a weakening in the
stock’s strength. This is a good time to consider quitting or leaving a
position entirely.

Bollinger Bands Strategies


3. Moving Average Strategy
Trading with Bollinger Bands is not restricted to a few strategies. Here’s
another way to put this indicator to use. We combine it with a Simple
Moving Average this time. The length has been set to 200. This strategy
necessitates a basic understanding of price action.

How should this strategy be implemented? You must consider the price’s
position in relation to the MA200. If the price is higher than the Moving
Average, the asset is in an uptrend. What does it imply? We’ll be looking
for ‘buy’ signals.

If you look closely at the screenshot above, you will notice a hammer
signal indicating that the price is likely to begin rising. This is a long term
strategy. When the price breaks below the MA200, you can exit the
market.

Let’s look at how to trade Bollinger Bands in a negative scenario. From


above, the price crosses the MA200. Later, the price continues to fall
without attempting to approach the MA200. This is an excellent opportunity
to hold your position until the price reaches the MA200.

4. MACD Trading Strategy


The Moving Average Convergence Divergence indicator is an excellent
supplement to a Bollinger Bands strategy. Finding the points where the
Moving Averages of the MACD cross with each other below the histogram
is the simplest way to use both of those indicators together. This is the first
trigger you can use to keep a close eye on the current situation.
The next step is to examine the price chart and the asset’s position in
relation to the Bollinger Bands indicator. The price should be hitting the
lower band for long trades. When this occurs, you will be able to purchase
the asset.

How does the Bollinger band work?


Based on price movements, Bollinger Bands® provides traders with a
sense of the market’s direction. Three bands are used in this process: one
for the moving average, one for the lower level, and one for the upper
level. Prices that approach the upper band may be a sign of overbought
conditions in the market.

What do Bollinger Bands tell me?


Bollinger bands are useful for determining the relative high and low points
of a price. Both upper and lower bands are utilised in pairs, along with a
moving average. Moreover, the two bands are not meant to be used alone.

Is Bollinger Bands a good indicator?


You can find possible entry and exit locations as well as quick, short-term
price swings with the aid of Bollinger Bands®. Bollinger Bands® are a
versatile and intuitive visual analysis tool that can be useful for many
traders

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