04/12 Sethurathnam Ravi Tonight's Class
Good evening, members of the Aditya Birla Investment Group.
Everyone has applied to participate in the investment program members, please be patient,
the applicant is too much, but we need a more suitable partner, recently have been busy with
the start of the investment program for a long time not shared the trading experience with you.
Tonight we will share some market trading knowledge with you. One more thing, I am in the
process of negotiating with a listed company, if this goes well, we will start the first IPO project
of this investment program soon!
About this matter waiting for my determination, we do not discuss it first, it is very late ,
everyone keep quiet to start tonight's sharing
Next up is a technical lesson on Bollinger Bands trading strategies.
John Bollinger developed Bollinger Bands, a powerful technical indicator. The bands encapsulate
a stock’s price movement by providing relative highs and lows. The Bollinger Band indicator is
built around a moving average, which defines the intermediate-term “trend” based on the time
frame you’re looking at.
However, how do we apply this indicator to trading, and what are the winning strategies?
In this post, we’ll give you a solid understanding of the bands, as well as five trading strategies to
test to see which works best for your trading style.
What are Bollinger Bands?
Bollinger Bands is a technical analysis tool for stock trading developed by John Bollinger in the
1980s. The bands are part of a volatility indicator that calculates the relative high and low of a
security’s price about previous trades.
Volatility is measured using standard deviation, which changes as volatility rises or falls. When
the price rises, the bands widen, and when the price falls, the bands narrow. Bollinger Bands can
be used to trade various securities due to their dynamic nature.
Bollinger Bands are made up of three lines: upper, middle, and lower. The middle band is a
moving average, and the trader determines its parameters. The upper and lower bands are on
opposite sides of the moving average band.
The trader determines how many standard deviations the volatility indicator should be set. The
number of standard deviations determines the distance between the middle band and the upper
and lower bands. The position of these bands indicates the trend’s strength and the potential
high and low price levels that can be expected shortly.
How to trade with Bollinger Bands?
1. Reversals
Fading stocks when they start printing outside of the bands is a simple but effective trading
strategy. We’ll take it a step further and incorporate some candlestick analysis into this strategy.
For example, rather than shorting a stock as it approaches its upper band limit, wait to see how it
performs. If the stock goes parabolic or gaps up and then closes near its low while trading near
the outside of the bands, it is often a good indicator that the stock will correct in the near term.
Then, depending on where the stock finds support, you can enter a short position with three
target exit areas:
(1) The upper band
(2) The middle band
(3) The lower band
2. Double Bottoms
A double-bottom setup is a common Bollinger Band strategy.
This formation’s first bottom is characterized by high volume and a sharp price pullback that
closes outside of the lower Bollinger Band. These kinds of moves usually result in what is known
as an “automatic rally.” The automatic rally’s high usually serves as the first level of resistance
in the base-building process before the stock moves higher.
After the rally begins, the price attempts to retest the most recent lows to test the strength of the
buying pressure that came in at that bottom.
This retest bar should print inside the lower band, according to many Bollinger Band technicians.
This indicates that the stock’s downward pressure has subsided and that there is a shift from
sellers to buyers. Pay close attention to the volume as well; it should drop dramatically.
3. Riding the Bands
Many Bollinger Band newcomers make the same mistake: they sell when the price reaches the
upper band and buy when it reaches the lower band. According to Bollinger, a touch of the upper
or lower band does not constitute a buy or sell signal.
Look at the example below and notice how the bands tighten just before the breakout. To return
to an earlier point, price penetration of the bands cannot be used to justify shorting or selling a
stock.
Take note of how the volume exploded on the breakout and the price began to trend outside of
the bands; these can be extremely profitable setups if given enough room to fly.
4. Bollinger Band Squeeze
Another trading strategy is to predict when a squeeze will begin. Using daily charts, the idea is
that when the indicator reaches its lowest level in 6 months, volatility will rise. This relates to the
tightening of the bands we mentioned earlier. The Bollinger Band indicator’s squeezing action
frequently foreshadows a large move.
Additional indicators, such as volume expanding or the accumulation distribution indicator rising,
can be used. These additional indicators add to the evidence of a possible Bollinger Band
squeeze.
We need an advantage when trading a Bollinger Bands squeeze because these setups can fool
even the most experienced traders.
5. Middle Bands
The middle band is configured in many charting applications as a 20-period simple moving
average.
When the stock is riding the bands, the middle line can represent areas of support on pullbacks.
When the price returns to the middle line, you could increase your stock position.
In terms of determining when a trend is losing steam, the failure of the stock to continue to
accelerate outside of the bands indicates a weakening in the stock’s strength. This is a good time
to consider quitting or leaving a position entirely.
Well, that's it for tonight's [ Bollinger Bands Trading Strategy ]. Tonight we talked about what
Bollinger Bands are and how to trade with them in 5 ways. Tomorrow night we will learn 5
Bollinger Bands Trading Strategies.
