Bollinger bands are typically a type of chart indicator that is mainly used for technical analysis. These bands are extensively used by traders in various markets, such as futures, stocks, and currencies.
Published on 19 December 2022
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In the 1980s, John Bollinger created this band; you can now come across unique insights that are related to volatility and price. Determining oversold and overbought conditions has never been easier before, thanks to these Bollinger bands.
Several at-home traders and professional traders rely on Bollinger bands' strategy, thus generating desired results. For more information, check out this article at a quick glance. Stay tuned till the end, and you will be able to discover valuable details immediately.
How Are You Supposed to Calculate Bollinger Bonds?
These Bollinger bands can be plotted as three lines:
An upper band
A middle line
A lower band
There is a common Bollinger band calculation that uses a 20-day SMA or Simple Moving Average for the middle band.
In order to calculate the upper band, you will have to consider the middle band, thus adding twice the standard deviation to the given amount.
If you want to calculate the lower band, you will have to consider the middle band and subtract two times the daily standard deviation.
Now, let's take a quick look at the formula of Bollinger Band:
BOLU= MA(TP,n) + m*σ[TP,n]
BOLD= MA(TP,n) - m*σ[TP,n]
Here,
BOLU stands for Upper Bollinger Band
BOLD stands for Lower Bollinger Band
MA stands for Moving Average
TP (typical price) = (High+Low+Close)/3
n= number of days in the smoothing period
m= number of standard deviations
σ[TP,n]= Standard deviation over the last periods of TP
Now, it's time to pave the way toward learning the Bollinger Bands’ strategy. Delve deeper!
What Are the Various Bollinger Bands Strategies?
Check out some of the pointers stated below in this article:
● RSI Strategy
If you want to identify value areas on your chart, all you need to do is rely on a Bollinger Bands indicator; that's it. However, these bands do not speak volumes about the move; determining whether it is weak or strong might look like a challenging task. This is why you need to use this RSI or Relative Strength Index indicator. If the market portrays a higher high, but the indicator marks a lower high, you can consider it as a sign of weakness- bearish divergence. On the other hand, if the market shows a lower low and your Relative Strength Index indicator marks a higher low, it is a sign of strength-bullish divergence.
In simple words, if the overall cost lies above the upper Bollinger Bands, you need to look for a bearish RSI divergence. Similarly, if the cost is near the lower Bollinger Bands, look for a bullish RSI strategy.
● MACD Trading Strategy
The MACD, also referred to as the Moving Average Convergence Divergence indicator, is an amazing supplement to a Bollinger Bands strategy. If you are looking forward to using these indicators together, all you need to do is search for the point where the MA of the MACD tends to cross one another below the histogram.
Through this, you will get the scope of monitoring the given situation. In the next step, you will have to focus on examining the price chart and position of the assets in relation to the indicator. For long trades, the overall price must hit the lower band. Under these kinds of situations, you can now buy the asset.
● The Options Trading Strategy
Now, let's move on to the next Bollinger Bands strategy. As mentioned earlier, Bollinger Bands are crucial technical indicators; they adjust themselves well to volatile market conditions. With this indicator, you can now monitor an asset's price changes or periods of increased volatility. During low-volatility periods, the traders place their trades based on the new price trends. With these indicators, you will be able to learn whether the market is about to break out or not.
Traders can now take a step toward identifying profitable trading opportunities. The expansions of these bands typically indicate high and low price volatility. If you are expecting the market to be volatile, you can consider using long straddles. On the other hand, if the market is expected to be volatile, you can use short straddles and strangles. Bollinger band trading can generate the right kind of results; all you need to do is use the strategies whenever required. It's time to check out the last Bollinger Bands strategy now.
● Price Action Strategy
By now, you already know about the various uses of Bollinger Bands, right? However, they can be used in an effective manner by adding some additional tools. If you want to take a step back from using these indicators, relying on the Price Action strategy will indeed be your best bet. This particular strategy comes with two primary signals:
The price must reach the borders of the envelope.
The second trigger is the Price Action Signal itself. You can interchange the morning star with various Price Action Models.
Hopefully, these Bollinger Bands strategies will be helpful!
The Bottom Line
These are some of the best Bollinger Bands strategies that you need to learn in the first place. Also, you can choose to develop your own strategies at your convenience.
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The core maxim of investment is to set realistic expectations regarding returns, so you can plan your goals and achieve them. A simpler way to understand the importance of assuming practical returns on investment is through an example.
Difference Between Large Cap and Medium Cap in Stock Market
Choosing the right stocks for trading and investment purposes can be a little difficult and tricky, especially when you are only starting your journey in the stock market. But is it all that difficult? Not if you know what parameters you need to select your stocks.
Relative Strength Index (RSI) – Everything You Need to Know
You might have seen stock pricing charts displayed at trading terminals. These charts help traders in analysing the market and predicting future price movements of stocks. They consist of colourful lines plotted in smaller panels in between a graph-like structure. These lines are technical indicators that reflect various market parameters related to stocks.
Let's check out some of the other trading indicators at a quick glance:
Average directional index
Ichimoku cloud
Fibonacci retracement
Standard deviation
Relative strength index
Moving average convergence divergence
Stochastic Oscillator
Use can rely on these trading indicators with your eyes closed.
By monitoring the pace of price action, Bollinger Bands assist in the process of measuring volatility; it observes whether the price is moving down or up. Bollinger bands typically create bands below and above the Moving Average. With an increase or decrease in volatility, these bands tend to expand and contract.
With the help of a Double Bollinger Band, traders can now assess the momentum of an existing trend.
You can choose to use Bollinger Bands in combination with various types of indicators. Some of them typically include RSI, moving averages, stochastics, or MACD. It may also include research tools that are capable of supporting your analysis.
Bollinger Bands offer information that is related to price behavior. Diligent traders can use them for support, trend, volatility analysis, and resistance.
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The core maxim of investment is to set realistic expectations regarding returns, so you can plan your goals and achieve them. A simpler way to understand the importance of assuming practical returns on investment is through an example.
Difference Between Large Cap and Medium Cap in Stock Market
Choosing the right stocks for trading and investment purposes can be a little difficult and tricky, especially when you are only starting your journey in the stock market. But is it all that difficult? Not if you know what parameters you need to select your stocks.
Relative Strength Index (RSI) – Everything You Need to Know
You might have seen stock pricing charts displayed at trading terminals. These charts help traders in analysing the market and predicting future price movements of stocks. They consist of colourful lines plotted in smaller panels in between a graph-like structure. These lines are technical indicators that reflect various market parameters related to stocks.
Let's check out some of the other trading indicators at a quick glance:
Average directional index
Ichimoku cloud
Fibonacci retracement
Standard deviation
Relative strength index
Moving average convergence divergence
Stochastic Oscillator
Use can rely on these trading indicators with your eyes closed.
By monitoring the pace of price action, Bollinger Bands assist in the process of measuring volatility; it observes whether the price is moving down or up. Bollinger bands typically create bands below and above the Moving Average. With an increase or decrease in volatility, these bands tend to expand and contract.
With the help of a Double Bollinger Band, traders can now assess the momentum of an existing trend.
You can choose to use Bollinger Bands in combination with various types of indicators. Some of them typically include RSI, moving averages, stochastics, or MACD. It may also include research tools that are capable of supporting your analysis.
Bollinger Bands offer information that is related to price behavior. Diligent traders can use them for support, trend, volatility analysis, and resistance.
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