• Stocks
  • Commodities
  • Cryptocurrency
  • Forex
  • Real Estate Investing
  • Other Categories
    • Investing Reviews
    • Business
    • Career
    • Credit
    • Debt
    • Financial Advice
    • Investing
    • Real Estate
    • Retirement
    • Modest Money Facebook
    • Modest Money Twitter
    • Modest Money LinkedIn
    • Modest Money RSS Feed

Modest Money

Personal Finance Blog for Everyday People

  • Investment News
    • All Investing News
    • Commodities News
    • Currencies News
    • Stock Market News
    • Real Estate Investing
  • Hot Investing Tips
    • Using The Graham Formula to Find Underpriced Stocks
    • Why Dividend Growth Investing Works
    • Understanding Your Place in Bull and Bear Markets
    • How a Catalyst Turns into Dollar Signs
    • The Truth About Binary Options – Legit Trading or Scam?
  • Top Investing Books
    • Top 3 Trading Books
    • The Best Books For New Investors
    • Top 3 Books on House Flipping
  • Recommended Resources
    • Favorite Resources
    • Ally Invest Review
    • Betterment Review
    • Lending Club Review
    • Personal Capital Review
    • Financial Product Reviews

Top 3 Bollinger Bands Trading Strategies

Bollinger bands are one of the most popular and widely used technical indicators. Many successful trading strategies are based on nothing more than Bollinger bands and a few complementary indicators.

The key to the success of the Bollinger bands indicator is its simple and universally applicable representation of a security’s recent historical price movement and general volatility. This simple and intuitive representation offers ample ground for the development of highly effective trading strategies based on the recent price action within the historical boundaries that the Bollinger bands represent.

Bollinger Bands

Bollinger bands are based on a simple moving average of a security’s price, the middle line, and the upper and lower boundaries or ‘bands’ that represent two standard deviations from this moving average.

The simple and intuitive theory behind the use of Bollinger bands is the general limitations of a security’s price change based on its recent history. The price of a security is unlikely to deviate far beyond the upper and lower boundaries set by its recent volatility, and any sharp movements in price toward these bands are likely to lead to corrections in the short term.

This general principle then offers a number of advanced and sophisticated strategies that traders can use to effectively predict short term price action.

Double Bottoms

Probably the most popular and commonly used Bollinger bands trading strategy is the double bottom. This strategy looks to identify a common pattern of lower resistance level testing that happens before a sharp price rally.

The first bottom should occur on high volume and stop below the lower band. This sets the lower resistance level that is tested again on lower volume with a second bottom, this time within the lower band or even on the actual lower band itself.

This double bottom signals that the market has found a lower support level, and will now seek out an upper bound with a subsequent sharp rally.

Candlestick Reversal

This next strategy uses a candlestick chart to act as a complementary indicator for fading reversals. Instead of merely buying and selling every time a security’s price exceeds the Bollinger bands, complementary indicators help to identify and time trades to increase their rate and magnitude of success.

The candlestick reversal involves waiting for prices that have moved outside their Bollinger bands to close at either a daily high or low before trading on an upcoming correction. Therefore, a stock whose price has exceeded its upper band will be ready for a correction downward when it ends a trading down at the lowest price for that day.

Band Squeeze

The Bollinger bands squeeze strategy relies on correctly predicting sudden price breakouts. Volatility tends to tighten alongside waning volume right before a major price breakout, and traders use this signal to position for these rapid spikes in price, volume and volatility.

The Bollinger bands squeeze strategy relies on correctly identifying a tightening of the bands and a complementary drop in volume. It is important that volatility and volume are dropping at the same time for an extended period, then the price, volume and volatility should rise slowly for a few days before the full breakout occurs.

Final Thoughts

As a trader or investor it is important to understand technical indicators and how they work. Bollinger Bands are a widely used indicator that can help you find excellent entry and exit points by using the techniques above. Make sure to practice using Bollinger Bands in a simulator until you have a solid understanding of how they work.

Tweet
Share
Pin3
Share4
+1
7 Shares

Top 3 Bollinger Bands Trading Strategies

Recent Posts from Modest Money

  • Which ICO Projects Should You Monitor in the Upcoming Months?
  • Top 3 Books on House Flipping
  • How to Buy and Hold Real Estate
  • Betterment Review – Insider Investing Scoop
  • 5 Steps You Need to Take to Become a Day Trader
  • 4 Ways to Invest in the Real Estate Market
  • Why You Need a Side Hustle
  • How We Make Money Swing Trading Stocks
  • Roth IRA Conversion Ladder for Early Retirees: Decoded
  • Which Cryptocurrency to Buy: Top Three Bitcoin Alternatives

March 9, 2018 by Ross Cameron Leave a Comment

Filed Under: All Recent Investing News, All Stock Market News Tagged With: Bollinger Bands, Chart Patterns, Technical Analysis

About the Author: Ross Cameron

Ross Cameron is a full time day trader and is the owner of Warrior Trading (https://www.warriortrading.com).  At Warrior Trading Ross hosts a Day Trading Chat Room and teaches Day Trading Courses to beginner and even advanced traders.  Over the years he has offered day trading webinars and seminars for many large companies including eSignal, Trade-Ideas, Lightspeed Financial, and Speedtrader.  In 2016 Ross was nominated for a Benzinga Fintech award for Best Educator. Also check out his YouTube channel and his book How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology .

Connect With Ross Cameron : FbtweetLinked


Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Most Popular:

  • Ally investing review
    Ally Invest Review
  • betterment investing review
    Betterment Review
  • Underpriced Stocks Graham Formula
    Top 3 Trading Books Every Trader Should Read
  • Underpriced Stocks Graham Formula
    How to Find Underpriced Stocks Using The Graham Formula
  • Investment Diversification
    Investment Diversification: 5 Risky Mistakes to Avoid
  • dividend growth investing
    Why Dividend Growth Investing Works
  • binary options scam
    The Truth About Binary Options - Legit Trading or Scam?
  • Investing for the Long Term
    Investing for the Long Term: Understanding Your Place in Bull and Bear Markets
  • Should investors buy individual stocks or index funds
    Should Investors Buy Individual Stocks or Index Funds


newsletter

Modest Money Investing News

© 2019 ModestMoney.com – All Rights Reserved.

  • Blog Advertising
  • About us
  • Blogroll
  • Top Finance Blogs
  • Disclaimer
  • Privacy Policy
  • Contact
  • Sitemap