Bollinger Bands


Candlesticks touch and ride the Bollinger Lower Band. When you see the band widen that simply means that there is volatility at that time. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band.

SharpCharts Calculation


Surges towards the upper band show strength, but can sometimes be interpreted as overbought. Plunges to the lower band show weakness, but can sometimes be interpreted as oversold. A lot depends on the underlying trend and other indicators. Click here for a live chart. The default parameters 20,2 are based on the default parameters for Bollinger Bands.

These can be changed accordingly. According to Bollinger, these stocks could be starting new up swings. This scan is just a starting point. Further refinement and analysis are required. According to Bollinger, these stocks could be starting new down swings. Notice how the price of the stock is barely moving at 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. 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. As you see at 7 and when it wants to break above the We should now expect it to break above the As you see it could even reach the It is the same as when we have a downtrend. Candlesticks touch and ride the Bollinger Lower Band.

Bollinger Bands are great in showing the reversal signals too. Usually a nice reversal signal becomes formed when a candlestick breaks out of the Bollinger Upper or Lower Bands, and then it is followed by another candle which has a different color the confirmation candlestick. One of the best examples can be seen in the above image at 1. Below, I am showing you the signal once again:.

As you see the candlestick 1 which is a bearish candlestick is formed completely out of Bollinger Lower Band, and the next candlestick 2 which is a bullish candlestick has covered the body and upper shadow and also most of the lower shadow of candlestick 1.

These two candlesticks form a signal which is called Bullish Engulfing. It is a strong short reversal signal when it breaks out of Bollinger Upper Band.

I strongly recommend you to learn the candlestick signals. Note how both candlesticks broken out of the Bollinger Lower Band and how the second candlestick has covered the first one totally. Note how both candlesticks have broken above of the Bollinger Upper Band and how the second candlestick has covered the first one.

Also look at the big upper shadow that the second candlestick has formed. False signals always form. Indeed, the form a lot more than the true signal. True signals are easier to catch, because they are stronger and look outstanding. There are false range breakouts and also false reversal signals. Those who like to trade the reversal signals, will be encountered with more false signals because a trend can be continued for a long time, and it is not easy to say when it will reverse.

If you like to avoid being trapped by false reversal signals just ignore the very first two reversal signals when there is a strong trend ongoing. For example, some traders take a short position when they see the below signal, but as you see this is not a strong signal compared to the signals I showed you above:.

The uptrend is really strong, and this signal is the very first reversal signal on such a strong uptrend. What do I mean by strong uptrend? Look at the uptrend slope.

It is a sharp slope that is going up strongly. There is no sign of exhaustion in it yet. Look at the Bollinger Middle Band Slope the first red arrow. So the trend is still strong and has not formed any sign of exhaustion when this relatively true signal was formed. You could take a short position, but you really had to get out when the continuation signal formed around Bollinger Middle Band.

Now look at the below chart and follow the numbers. Find out why some signals are false, some are true and some are continuation. As you see Bollinger Middle Band works very well with the continuation signals when there is an ongoing strong trend. In an uptrend, continuation signals are formed when the candlesticks go down, retest Bollinger Middle Band, and then go up again.

Taking the continuation signals are much safer than the reversals, unless you make sure that the trend is really close to reverse and is already exhausted. This was just an introduction how to use Bollinger Bands in taking the reversal and continuation trade setups on the trending and sideways markets. You need to practice more to become expert in locating the true signals.

Learn more about Bollinger Bands:. I have studied this most effective indicator explanation and got photo copy for ready reference. Indicator has been explained in very clear manner.

I will use this strategy in my trade. Thanks a much for such demonstration. Great man…I have never seen such a great explanation even upon paying tuition fees. U r really Excellent. I am looking forward article from you regarding candlestick reversal signals and false signals…. I am learning from your article and that would be really helpful for all of us basically for me.

So, thanks again and please try to help us to get more skilled with the other ways to do better in trading. From the start i was stick with the BB indicator but not use it with details. This could help me better in BB. The break away gap in the last graph at 7 which was tagged relatively true reversal signal is also a confirmation of change in polarity. This occurred just after the bearish engulfing pattern at 7. My question is does break away gap join in fundamental analysis of a trend in such suitation?

Thank you so much. The fact that you explain everything so clearly is amazing. The fact that you also involve real life examples of stocks and having us do questions helped the info sink in even more! The above article is clear to understand.

Mainly, because they are in the Middle Band region and since it is in Middle Band, it could be retesting the Middle Band or breaking away from the Middle Band, how can a novice trader consider continuation and confirmation as a trade setup? I know we can consider the close price to determine the direction. But, going back on some charts and seeing such signals — it proves to be quite a tricky setup with chance.

We have talked about the candlesticks that need confirmation in different articles:. Also this article talks about the continuation trade setups in more details: Hey Chris my confidence in trading confidently increases by every article of yours I read even without paying a dime More grease to your elbow and more assets in your arsenal,you did quite well and God will bless all your pips Thanks. I am new trader and start trading right now. Explain in a very simple and more efective ways.

Chris Pottorff for a such a nice article which specially very helpful for New trader…. Which one should I choose to have exactly the Bollinger Bands you are using to trade? What time frame is suitable? Here is the answer about time frame: Are you new to Rezze?

Then please read this article first: You know I have got it, when I ask less questions. But at the moment, like a sponge I am absorbing your materials. And they are all good and consistent. Referring to point 2 above on reversals. Does it matter to the strength of the setup if in the piercing line above, the upper shadow is also very long.

What if both candles with beautiful size and long shadows were out of the BB range, and none made back or crossing into the BB range? What do you make out of the strength of such a setup? Do you wait for another confirmation? Yes, it is a negative point for a long trade setup: What if the candlestick preceeding 1 was also outside the BB range?

Say it went bearish body and shadows under the lower BB, and candlestick 1went up bullish strongly but still outside the lower BB? Would it have been a good setup? Is this a strong trade setup? What would you score it? Yes, it a score trade setup that we took it and we use it to compare the other short trade setups with: I suggest you to read all the articles listed on the below post carefully and patiently. What I understand from the number of questions you ask while you have not read the articles carefully, is that you are excited and in a hurry.

This is not good for a trader: Thank you for your wisdom. I really appreciate your helpful attitude and being extremely patient with me.

You are right that I am excited and in a hurry to understand it. I too have lost a lot of money, and we are not talking about just tens of thousands. In fact, I had decided to not trade again but to just invest using value investing.

But I still got burnt on good companies because of there are just too many variables, e. Hence, I find currencies are much purer. And the market size is so large that it is not easily manipulated. Having said that, I have actually read so many of your articles. Including the one you mentioned above. But because I read so much, whilst I may remember the pattern, I may not remember the currency pair and the dates.

Chris, your article https: I am actually talking about a bullish entry on Are you talking about the same thing? You did go long on This is question was to illustrate whether a breakout where the candles are still outside the range and not making it back into the BB range can still be considered as a strong trade? Now, you are right about not too hurry it up, and read up the articles patiently. A very important advise.

I promise to remind myself on that. I am trying to do backtesting now, and see what the outcome is. We also talked about that too strong weekend gap that GBP cross currency pairs opened with: It was a strong setup on the weekly, but on the daily it formed on a too bearish market when the So we avoided it on the daily.

Dear Chris When we look for nearest resistant or support lines some of them turns from downside to upside the other opposite. So if we think about going long or short which one we should consider? Both or opposite turning point? I hope explanation of my question is clear enough. English not my first language Thank you Dogan. When there is a downtrend or range, a descending resistance is a better choice to go long.

And visa versa for going short. Thank you for time to answer me. I hope this is not a silly question. When I want to go long as using line chart over the price level there are some turning points.