10 Steps To Better Bollinger Bands
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 periods and 2 standard deviations are default values only. – These periods of 20 and 2 are kind of like the “average” values one might consider. If you plan on using Bollinger bands and using multiple time frames then plan on adjusting your period value. The standard deviation of 2 is the same in any time frame but the period will need to be adjusted for many reasons.
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.
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.
It is possible for price to follow one Band – One of my favorite strategies with Bollinger bands is when price follows a band up or down. Rather than reversing price, will actually move up or down with the band and sometimes an explosive fashion. Look to the response of the band to approaching price for a clue on what will happen.
Bollinger Bands work with more traditional technical analysis – Bollinger Bands are great at confirming traditional market patterns. Patterns such as the head and shoulders or double bottoms and tops are easily confirmed by touches to the Bollinger Bands. A double top at the upper range of a Bollinger Band is often a strong sell signal, made stronger by the Bollinger confirmation; this is called confluence and an excellent confirmation tool.
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If you are already familiar with trend lines and support and resistance, then adding Bollinger bands to this type of trading is an excellent combination. Bollinger bands will help to identify high probability zones when combined with a trend line / support and resistance style of trading.
Bollinger bands has just 2 values to set. The first is the N value, the second, K value is the standard deviation. 2 standard deviations is pretty common and works rather well in all timeframes. I like to set-up a 2.0, 2.5, and 3.0 standard deviation one on top of the other. As far as the N value 10 is the absolute minimum. This is the look-back period and anything less than 10 is just noise.
Bollinger bands are much more effective on time frames that allow for less extreme volatility. For example a tick chart or 1 minute chart has extreme volatility spikes. Bollinger bands is not going to effectively give you any heads up before these moves happen. You’re better off watching a 15 minute and with Bollinger bands and jumping to the 1 minute to trade. Or watching an hourly and jumping to the 15 minute. Something like that.
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. The width of the bands is important. I use 3 set of bands personally. 2.0, 2.5 and 3.0 standard deviations on every time frame I trade. this allows me to see the extreme nature of the move or potential reversal. Using high probability candlestick patterns with band width is an excellent tool for identifying entry.
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