Jul 5, - Thursday, August 19, Here is a trading video overview on the CCI Bollinger Bands NinjaTrader indicator. This cTrader automated trading strategy uses a Bollinger Band and the Relative Strength (RSI) indicators to automatically submit and manage. E-book de trading excellent: "Le grand livre des indicateurs.". FIDELITY PERSONAL INVESTING DIVISION REVIEW
One should be outside of the Bollinger Bands, another — inside them. Closing above or below the bands range is a signal for trend strengthening and continuation if the boundary line is directed the same way as the price. If the price goes above the upper line but the line is heading down, it is a sell signal with the lower line as the target. The same is true for the opposite direction. Requires confirmation. You have to do additional market analysis in case the price touches one of the lines and you have to find confirmation signals from other indicators or from the chart patterns.
Standard settings are based on the simple moving average with the period of 20 and the number of standard deviations equaling 2. The indicator was developed for equities trading. Another unique feature about Bollinger Bands is that they are quite flexible. For example, they are dynamic in the sense that they can adjust to different market conditions and to trade various financial instruments, including stocks and forex.
This means that they can be an attractive tool for all types of traders. The Bollinger Band calculations are quite easy. How to Use Bollinger Bands for Trading The Bollinger Bands is a powerful indicator that delivers multiple trading signals for traders in the market.
Most traders utilise it for market analysis , as a volatility channel, as well as a momentum tool. As a volatility channel, traders watch the upper and lower bands for volatility cues in the market. Particularly, traders watch for the Bollinger Bands squeeze, which occurs when both the upper and lower bands converge or come together, especially after a trending period.
A Bollinger Bands squeeze or contraction implies that the underlying market is witnessing low volatility. Periods of low volatility in the market are usually succeeded by a period of high volatility, representing a lucrative opportunity for traders to catch big profits out of the resulting or expected move.
A squeeze is, therefore, a period of price consolidation ahead of a breakout. When high volatility comes into the market, the upper and lower bands of the Bollinger Bands will diverge or broaden. A bullish breakout in the market which denotes a buying opportunity will occur when the upper band of the indicator is breached. Similarly, a bearish breakout which denotes a selling opportunity will typically be confirmed by the breach of the lower band. A valid breakout ideally happens on high volume, which implies the conviction of market participants.
A squeeze does not give any directional cues on an upcoming breakout, but in some cases, traders can be biased towards the preceding price trend. Generally, a tighter squeeze is likely to lead to a stronger breakout. As well, the longer the squeeze, the stronger the anticipated breakout. When opening a breakout trade using Bollinger Bands, a stop loss is placed outside the opposite band of the prior squeeze.
For instance, if the asset price breaks upwards, the stop loss for the buy trade position will be placed outside the lower band during the squeeze. When used as a momentum tool, Bollinger Bands can be used to identify overbought and oversold conditions in the market. Bollinger Bands use standard deviation in its computation, and applying it as a momentum tool allows traders to trade using the concept of mean reversion.
This is a theory that the price of an asset will tend to revert to its average price over time. Just by watching Bollinger Bands on a chart, traders can watch price extremes or simply periods when the price has deviated so much from its mean. Mean reversion is excellent for trading ranging markets, with the upper and lower bands acting as dynamic lines for resistance and support , respectively.
This means that traders will look to place buy orders when prices are at or close to the lower band, and they will place sell orders when prices are at or close to the upper band. While this a great strategy for trading range-bound markets, it can be very misleading in trending markets where prices can hug the bands for prolonged periods. In such markets, Bollinger Bands can be used as a trend-following indicator. In strong and prolonged trending markets, Bollinger Bands usually slope in the direction of the trend.
The idea in a trending market is to find easy ways to join or enter the dominant trend. This means finding quality price points after a retracement or pullback in the market. The middle and lower bands will provide great price points for entry targets when there is a retracement or pullback in the market.
In a downtrend, traders will look to enter trades at the middle or upper bands after a retracement or pullback. All its bands highlight valuable price areas in the market. But this naked information can be complemented with the trade signals provided by the MACD or the RSI, an indicator that will show trend strength and momentum at the value price areas. For instance, in an uptrend, traders can place buy trades in the middle and lower bands when the RSI delivers oversold signals.
The RSI can also give validation during breakouts by showing whether there is enough momentum for any resulting move to be sustained. This is done by observing the centreline. If, for instance, the price breakouts below the lower band, a solid signal to sell will be given by the RSI when the indicator falls below the line to signal increasing bearish momentum in the market.
This is usually done by using the double Bollinger Band strategy. This involves using two Bollinger Bands on your chart: the first is the default indicators the middle 20 SMA and 2 standard deviations , and the second one is the default 20 SMA but with 1 standard deviation SD. Using this strategy there are three interest zones generated: the buy zone, the neutral zone, and the sell zone.
The buy zone is the area between the first upper SD and the second upper SD — it is located above the middle band. When the price is in the buy zone, it is a signal to go long. The neutral zone is the area between the upper first SD and the lower first SD. It is the area covered by the secondary Bollinger Bands. When the price is in the neutral zone, it is basically directionless, and traders should not look to place any orders in the market.
The sell zone is the area between the first lower SD and the second lower SD — it is located below the middle band.
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