Numbers 1, 2 and 3 are where the candlesticks 1, 2 and 3 formed on the previous chart. Yes, it is a negative point for a long trade setup:. Notice how the Band-Width begins to increase quickly after reaching the 6 month low level. One of the most important features of Bollinger Bands is that when the market is slow and there is no reasonable volatilitythe upper and lower bands become close to each other: As you see on the above chart, Bollinger upper and lower bands have become so close to each other where the white arrows show. Bollinger Middle Band is nothing but a simple moving averagebut it is the base of the other two upper and lower bands.
What typically happens is a trading strategy works well on specific market conditions and becomes very popular. Once the market conditions change, the strategy no longer works and is quickly replaced with another strategy that works in the current market conditions. When John Bollinger introduced the Bollinger Bands Strategy over 20 years ago I was skeptical about its longevity. I thought it would last a short time and would fade into the sunset like most popular trading strategies of the time.
The upper and lower bands are then set two standard deviations above and below this moving average. The bands move away from the moving average when volatility expands and move towards the moving average when volatility contracts. Many traders length of the moving average depending on the time frame they use.
Notice in this example how the bands expand and contract forex double bollinger band strategy on the volatility and the trading range of the market. Notice how the bands dynamically narrow and widen based on the day to day price action changes. The indicator is called Band-Width and the sole purpose of this indicator is to subtract the lower band value from the upper band. Notice in this example how the Band-Width indicator gives lower readings when the bands are contracting and higher readings when bands are expanding.
One particular Bollinger Bands Strategy that I use when volatility is decreasing in the markets is the Squeeze entry strategy. The Squeeze strategy is based on the idea that once volatility decreases for extended periods of time the opposite reaction typically occurs and volatility expands greatly once again.
When volatility expands markets usually begin trending strongly in one direction for a short period of time. The Squeeze begins with the Band-Width making a 6 month low. In this example you can see IBM stock reaching the lowest level of volatility in 6 months. Notice how the price of the stock is barely moving forex double bollinger band strategy the time the 6 month Band-Width Low Is Reached. In this example you can see how IBM stock breaks outside of the upper Bollinger Band immediately after the stocks Band-Width level reached 6 month low.
Breakout Outside Of The Upper Band Occurs Right After The Volatility Reaches 6 Month Low In this example you can see how Apple Computers reaches the lowest Band-Width level in 6 months and one day later the stock breaks outside of the upper band. This is the type of set ups you want to monitor on a daily basis when using the Band-Width indicator for Squeeze set ups. Notice how the Band-Width begins to increase quickly after reaching the 6 month low level. The price of the stock will usually begin moving higher within a few days of the 6 month Band-Width low.
The Squeeze is one of the simplest and most effective methods for gauging market volatility, expansion and contraction. Always remember that markets go through different cycles and once volatility decreases to a 6 month low, a reversion usually occurs and volatility begins to go up once again. When volatility begins to increase prices usually begin moving in one direction for a short period of time. Swing Trading Tips For Beginners. Swing Trading Stocks Strategies.
Retracement Entry Methods Anyone Can Learn. Swing Trading Stock Ideas — Screening Stocks. Swing Trading Methods — Descending Triangle Analysis. Short Swing Trading — Selling Short Has Advantages. The Bands Contract And Expand Based On Daily Changes In Volatility The Band-Width Is Part Of The Bollinger Band Indicator Notice The Tight Trading Range At The Time The Signal Is Generated Breakout Outside Of The Upper Band Occurs Right After The Volatility Reaches 6 Month Low Apple Reaches Lowest Band-Width Reading In 6 Months Volatility And Momentum Begin To Rise After The 6 Month Band-Width Low.
Swing Trading Help For Beginners — 10 Rules All Traders Must Follow. How to Trade Options for Income. Swing Trading Stocks Techniques — Find Trending Markets And Manage Risk. Posted April 16, Posted April 15, Posted April 14, Posted April 13, Posted April 9, Posted April 7, YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND FOREX MARKETS.
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The Double-Bollinger Trading Strategy
Most technicians will use Bollinger Bands® in conjunction with other indicators, but we wanted to take a look at a simple strategy that uses only the bands to make. One Bollinger Bands Strategy Got My Attention. I’ve used the Bollinger Bands many different ways over the years with positive results. One particular Bollinger. 0 Thanks for requesting your free forex downloads! Your details are strictly protected, safe and never be sold or shared. We hate spam as much as you do.