🔥 HOW BOLLINGER BANDS WORK AND HOW TO USE THEM
👀WHAT ARE BOLLINGER BANDS?
BOLLINGER BANDS ARE A TECHNICAL ANALYSIS TOOL DEVELOPED BY JOHN BOLLINGER IN THE 1980S. THEY CONSIST OF A SET OF THREE LINES:
MIDDLE BAND: A SIMPLE MOVING AVERAGE (USUALLY 20 PERIODS).
UPPER BAND: THE MIDDLE BAND PLUS TWO STANDARD DEVIATIONS.
LOWER BAND: THE MIDDLE BAND MINUS TWO STANDARD DEVIATIONS.
THE BANDS EXPAND AND CONTRACT BASED ON MARKET VOLATILITY.
HOW BOLLINGER BANDS WORK
WHEN VOLATILITY INCREASES, THE BANDS EXPAND.
WHEN VOLATILITY DECREASES, THE BANDS CONTRACT.
PRICES TYPICALLY MOVE WITHIN THE UPPER AND LOWER BANDS.
TOUCHING OR MOVING OUTSIDE A BAND CAN SIGNAL A POTENTIAL REVERSAL OR CONTINUATION.
HOW TO USE BOLLINGER BANDS IN TRADING
1. IDENTIFY OVERBOUGHT AND OVERSOLD CONDITIONS
PRICE TOUCHES UPPER BAND: MARKET MAY BE OVERBOUGHT (POTENTIAL SELL SIGNAL).
PRICE TOUCHES LOWER BAND: MARKET MAY BE OVERSOLD (POTENTIAL BUY SIGNAL).
2. DETECT BREAKOUTS
SQUEEZE: WHEN BANDS CONTRACT SHARPLY, IT INDICATES A POTENTIAL STRONG MOVE AHEAD.
BREAKOUT FROM THE SQUEEZE: WATCH FOR A MOVE ABOVE OR BELOW THE BAND TO CONFIRM DIRECTION.
3. CONFIRM TRENDS
IF PRICE "RIDES" THE UPPER BAND, IT SUGGESTS A STRONG UP-TREND.
IF PRICE "RIDES" THE LOWER BAND, IT INDICATES A STRONG DOWN-TREND.
TIPS FOR USING BOLLINGER BANDS
DO NOT USE ALONE: COMBINE WITH OTHER INDICATORS LIKE RSI OR MACD FOR BETTER ACCURACY.
WATCH FOR FALSE SIGNALS: A PRICE TOUCHING A BAND IS NOT AUTOMATICALLY A TRADE SIGNAL.
ADJUST SETTINGS: SOMETIMES TWEAKING THE MOVING AVERAGE PERIOD OR STANDARD DEVIATION FACTOR HELPS BETTER MATCH YOUR STRATEGY.
💡 FINAL THOUGHT
BOLLINGER BANDS ARE POWERFUL FOR IDENTIFYING VOLATILITY AND POTENTIAL ENTRY OR EXIT POINTS, BUT LIKE ANY TOOL, THEY WORK BEST WHEN COMBINED WITH SOUND RISK MANAGEMENT AND OTHER FORMS OF ANALYSIS.
