Bollinger Bands Indicator Explained – Here's What You Need To Know!

Published on September 7, 2021

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Bollinger Bands Indicator Explained | Coffee With Markus | Episode 97

Intro: 0:00
What’s Happening In The Markets: 1:39
Bollinger Bands Indicator Explained: 4:50
Deep Dive Q&A: 14:09
Q: So Markus, how should one factor in “daily events” which seem to be a “Fundamentals” analysis on the economy, with technical analysis? 14:46
Q: What are the parameters to setup the Bollinger Bands: 16:54
Q: What does it mean when the upper, and the lower bands are getting closer? 17:46
Q: What is the difference between the Bollinger Bands, and Bollinger Bands Width? 22:05
Q: Can the middle band be used to filter the market? 27:04
Q: How do the Bollinger Bands compare to the Keltner Channels? 29:35
Q: Can we change the band settings to 3 standard deviation to be more conservative? How would it work in swing trading? 38:34

Have you ever heard of Bollinger Bands before? Bollinger Bands are a very powerful indicator but most traders are using it the wrong way. So today I’m going to show you the way that I’ve used them in my trading.

So the Bollinger Bands are actually a pretty simple indicator when you ‘look under the hood’. What you’ll see is that they’re a moving average and two standard deviations. Looking at my charts, you can see the Bollinger Bands with the moving average in the middle with the standard deviation lines on the top and bottom. If you open the settings of the Bollinger Bands, it has 3 different settings you can adjust:

  • Length: Typically you see 20 or 21 days as the standard Length setting
  • Standard Deviations: The default is 2 and that’s what we’ll stick with to start

Now as I mentioned earlier, most people are using them in the wrong way. Most people use the them as a so called “trend fading system.”

Let’s take a look at IBM which we talked about in our previous example, where I went through what Support & Resistance is. If you didn’t catch that video, you can watch it here:

Looking at a chart of IBM with the Bollinger Bands plotted, you’ll see that the stock tends to trade within the bands the vast majority of the time. Based on the settings I showed earlier, means that 98% of the time price stays within the Bollinger Bands.

Because of this you see people typically trading them in this way:

  • When price goes above the top Bollinger Band they use this as an indication of a time to short the stock.
  • Or when the price goes below the bottom Bollinger Band this is looked at as a time to buy the stock, expecting price to return within the bands.

Now in a sideways market, this looks like it could be a viable strategy, but now let’s take a look at what I believe is the most powerful way to use them in a trending market.

An easy way to do that will be to just look at the Nasdaq (NDX).

You will see that often price is touching the upper band, when the stock, ETF or whatever is trending. So how do you use them with a trending market?

If the market is in an uptrend, you will see that the upper band is turning up and prices are touching the upper Bollinger Bands. For how long? Until the upper band starts to turn around.

In a downtrend, this when the lower band acts like a trendline below the price. If we zoom in a little bit, you’ll see it a little easier. When the band starts to point lower and price is touching this band, this is a confirmed downtrend. Then when this band starts to flatten or turn around, the downtrend is over.

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Bollinger Bands Uptrends

Bollinger Bands Uptrends, Bollinger Bands Indicator Explained – Here's What You Need To Know!.

Forex Trading For Beginners – How To Utilize Pivot Indicate Find Lucrative Trades

Making money in the forex is not tough at all as long as you keep things easy. Once again we typically lose around twenty percent of the trend. Prevent methods that use cycles instead of indications of patterns.

Bollinger Bands Indicator Explained – Here's What You Need To Know!, Watch popular full videos related to Bollinger Bands Uptrends.

Bollinger Bands And How To Use Them To Predict Market Movement

This lasts about 60 days so it is well worth it to attempt a platform to your taste. Furthermore, the weekly MACD and CCI are at severe levels. You have reached the mindful proficiency stage.

It’s constantly amazing to hear the number of individuals believe trading without indicators is difficult. They have gotten so accustomed to putting indicators such as moving averages, MACD, Bollinger Bands, etc. on their charts, that they can’t see all the essential info that they are obstructing with these indications.

trading bollinger band

Naturally you don’t have to utilize chart patterns to do this. You can use any signs that you’re comfy with to go through a comparable procedure. Suppose you like moving averages. If the 10-bar MA crosses listed below the 50-bar MA then that would definitely show a sag, you may decide that. As you take a look at the chart, you see that this crossover would not take place up until the price reached about 117.75, so possibly that’s a great place for the stop. You might use Fibonacci retracement levels, Bollinger Bands, or numerous other tools to go through a comparable thought procedure.

If your trade rapidly approaches the limitation price and all your indications state that the rate movement is just beginning & not most likely to rapidly reverse on you, then you should first either eliminate your limitation price & let the price run, or, raise your limit cost another 5-10 pips. Then raise your stop to either your entry point or past it, to lock in either breakeven or some profit in case the cost all of a sudden reverses on you.

Enter your trade as rate moves past your Bollinger Bands Trader get in point and set a stop loss and revenue target. Enjoy the trade and alter your stop loss to recover cost as soon as possible. Always search for reasonable revenue targets and adjust them based upon your past outcomes. The most crucial objective is to manage the trade and not lose cash.Even the very best entries can lose cash if you don’t have a strong strategy to handle the trade.

You a) check which stocks are highlighted for you; b) check for the presence of one particular indicator; c) check to see if a highlighted stock with an indication is Bollinger Bands a definite trade on a private website; and d) place the trade (with one call, or through your online trading platform).

Fibonacci Retracement – This tool is by far among one of the most typically used tool in Forex. What this does is basically discover a retracement where the market will bounce and head back in the opposite instructions in a nutshell. This works well on charts with candlesticks on, you draw this tool from the greatest to the most affordable peaks and vice versa. Once this is done it projects some ‘assistance’ and ‘resistance’ lines in which ever instructions you picked. This tool works splendidly on high timespan charts and should be drawn 20pips or higher.

The problem is they all measure the very same thing, so it will appear that 3 signals are present when in truth it is only one. Learn experiment, discover however be really clear about what you are doing once you begin to trade.

Determining a trending market with Bollinger Bands is extremely basic. Bollinger Bands are developed to catch most of rate movement. You try to aim for consistency and are satisfying your day-to-day goals typically.

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