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Successful trading with Bollinger Bands Terbaru

Successful trading with Bollinger Bands – Successful trading with Bollinger Bands is one of the most common signs of technical analysis among traders of stocks, forex and other financial assets.

Created by John Bollinger in the 1980s, Bollinger Bands exist as a way out to help traders read price fluctuations and determine buy/sell status. Bollinger Bands are also useful for finding oversold and overbought conditions.

Below is a brief overview of the techniques for trading with Bollinger Bands that are important for traders to know.

Successful trading with Bollinger Bands

Anatomy of Bollinger Bands

The Bollinger Bands are made up of at least three curves, namely: Upper Band, Middle Band and Lower Band. details:

  • The middle band is a simple moving average (SMA) of a certain epoch.
  • The upper band consists only of the SMA now plus a special standard deviation.
  • The lower band consists of the number of SMAs that have just been subtracted by a standard deviation equal to the standard deviation used to create the upper band.
  • Check out this sample image of Bollinger Bands applied to GBP/USD chart with daily time frame. The Bollinger Bands here use a standard basis, the SMA with a 20-day epoch at the closing price, 2 standard deviation of the upper band and the middle band.
  • The Bollinger Bands curve will widen and narrow as market volatility changes. When volatility is low, the upper and lower curves will narrow. A narrow curve also generally indicates sideways price movements (up and down in a limited period of time) and then squaring during large movements. Meanwhile, when price movements tend to be directional (upward or downward) and volatility increases, the upper and lower curves will widen.

Trading techniques with Bollinger Bands

  • To use Bollinger Bands, we must first evaluate the distance between the upper and lower bands. If the distance between the upper and lower bands is relatively stable (range), then traders can be sure to buy/sell by reference to the movement of the price chart rather than the middle band. the rules:
  • When the middle band is bullish, it means that the situation is bullish. When the price action occurs across the middle band from bottom to top, there is a buying opportunity. Traders can place a buy trade above the middle band, with a stop loss match below the middle band. Profit object can be priced near the end of the upper band initially.
  • When the middle band is bearish, it means that the situation is bearish. When the price after the middle band moves up and down, it means that there is a selling opportunity. Traders can place a proper sell condition below the middle band, with a suitable stop loss above the middle band. Profit target can be priced near the end of the lower band initially.

The story of the application in the example graph above is as follows:

The green area indicates a buy signal, while the pink area indicates a sell signal. Very simple and profitable, isn’t it?

Unfortunately, the two conditions do not have to be suitable for application in all market conditions. If the upper and lower bands are significantly narrowed, the trader should not open a buy / sell trade case only according to the two conditions now.

Therefore, the narrowing of the range indicates that there will be a very strong trend towards a particular shift in the price – it can be bullish (uptrend) or bearish (downtrend) -.

The Bollinger Bands indicator as a lagging indicator cannot accurately predict the direction of the next situation, so opening a trading case when the range is narrowing is very risky. If you want to take advantage of the next big move, you should use another tick that can predict a successful trading position transition using Bollinger bands.

We see it if the bands are narrowing, then the most significant downtrend will follow until price action breaks the lower band. Nach, the break of the lower band is called an oversold condition.

If we see that the price is below the lower band that was very cheap and quickly rises again, we can open an oversold buying situation. However, market conditions do not have to be this perfect. Often the price has broken through the lower band, rose a little above the lower band (as if it is going to bounce), and then fell back to the lower band.

Similar dynamics are also common when price action breaks through the upper (overbought) band. After the price rises through the upper band, we may think that in the future it will return to the middle band. However, in reality, prices could continue to reach new highs and stay in space outside the upper band for several days.

Bollinger bands are very suitable for use in market situations. However, traders should use other technical signals to check for buy/sell signals when the market is trending. For example, the Relative Strength Index (RSI) or Average Directional Index (ADX) sign.

Especially when using Bollinger Bands, traders should always check the condition of the situation and market volatility before opening a buy/sell situation. You can’t just stick to the middle band as a trigger for a buy/sell situation, because price action doesn’t have to fluctuate in the upper band from the lower band only.

It takes a long time to practice trading with Bollinger Bands. However, once you get the hang of it, you’ll find lots of innovative techniques to make it more effective. For example, using multiple Bollinger Bands to improve signal accuracy, or combining Bollinger Bands and candlesticks to trade forex and stocks. 

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