There are a lot of rules to remember when trading with Bollinger bands. When reading about how to use Bollinger bands it may seem rather difficult to implement, but truth be told, Bollinger bands are not only easy to use but insanely accurate at short term price movement.
20 and 2 are just the default values - These periods are just a starting point. Yes they are effective, but adjustments will need to be made as you change timeframes. Your period (20) and standard deviation (2) will need to be smoothed or not directly related to the timeframe you are trading. For highly volatile markets consider making an adjustment to your period (20).
Bollinger bands need other confirmation. - I say BS, Bollinger bands are about the only tool / indicator I would ever consider using exclusively. I don't use them exclusivey, only because I don't have to. Truth be told Bollinger bands are just about the only indicator i would ever consider using exclusively. With a good understanding of Bollinger bands you don't need anything else.
The trend is your friend - Bollinger Bands work exceptionally well with trading ranges that have already been identified by a trader utilizing trend line techniques to form trading ranges. Using trend lines with a Bollinger Band system has proven to be highly profitable and predictable.
Following the bands. - Yes, rather than revert to the mean price will often gravitate to either band and head in that direction aggressively. This is one of the huge profit potential zones Bollinger bands offers. For clues on whether price will reverse or follow the bands with the band reaction as price approaches.
Bollinger bands are an excellent tool when used with other forms of technical analysis. If you are looking at other chart patterns or formations use Bollinger bands and the reversion to the mean in conjunction with the pattern for better accuracy. For example a bullish patterns penetrating the lower band(s) can together give you near perfect entry.
Bollinger bands are an excellent tool when applied to a trading style where trading ranges have been previously identified. Using support and resistance or diagonal trend lines is a nice way to begin to incorporate Bollinger bands into your trading.
The N value in Bollinger band settings represents the look-back period. Any setting less than 10 is not recommended. A setting less than 10 is going to give you results that are basically equal to price action. Short term time frames require an N period adjustment, but not less than 10. Consider an N period of 13 for intraday charts and the standard 20 N period for daily charts.
Bollinger Bands do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.
Bollinger Bands are lagging indicators and should be traded as such - Bollinger Bands are very much lagging indicators and show movement after the trade occurs. Knowing that Bollinger Bands are lagging will help you to understand why the external deviation lines are not perfect. Again pay special attention to how the "bands" (both of them) react to approaching price for a revelation on where price is headed. In this respect Bollinger bands is as much a perfect tool for trading as it gets.
Bollinger band width refers to deviations from the mean. The mean is the average. The default setting is usually 2.0 standard deviations and that's fine. Price will trade within the 2.0 standard deviation range approximately 90% of the time. I like to lay down an additional 2.5, and 3.0 standard deviation right over my 2.0. Combining candlestick pattern analysis with these entry zones makes for a good system. - 15224
20 and 2 are just the default values - These periods are just a starting point. Yes they are effective, but adjustments will need to be made as you change timeframes. Your period (20) and standard deviation (2) will need to be smoothed or not directly related to the timeframe you are trading. For highly volatile markets consider making an adjustment to your period (20).
Bollinger bands need other confirmation. - I say BS, Bollinger bands are about the only tool / indicator I would ever consider using exclusively. I don't use them exclusivey, only because I don't have to. Truth be told Bollinger bands are just about the only indicator i would ever consider using exclusively. With a good understanding of Bollinger bands you don't need anything else.
The trend is your friend - Bollinger Bands work exceptionally well with trading ranges that have already been identified by a trader utilizing trend line techniques to form trading ranges. Using trend lines with a Bollinger Band system has proven to be highly profitable and predictable.
Following the bands. - Yes, rather than revert to the mean price will often gravitate to either band and head in that direction aggressively. This is one of the huge profit potential zones Bollinger bands offers. For clues on whether price will reverse or follow the bands with the band reaction as price approaches.
Bollinger bands are an excellent tool when used with other forms of technical analysis. If you are looking at other chart patterns or formations use Bollinger bands and the reversion to the mean in conjunction with the pattern for better accuracy. For example a bullish patterns penetrating the lower band(s) can together give you near perfect entry.
Bollinger bands are an excellent tool when applied to a trading style where trading ranges have been previously identified. Using support and resistance or diagonal trend lines is a nice way to begin to incorporate Bollinger bands into your trading.
The N value in Bollinger band settings represents the look-back period. Any setting less than 10 is not recommended. A setting less than 10 is going to give you results that are basically equal to price action. Short term time frames require an N period adjustment, but not less than 10. Consider an N period of 13 for intraday charts and the standard 20 N period for daily charts.
Bollinger Bands do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.
Bollinger Bands are lagging indicators and should be traded as such - Bollinger Bands are very much lagging indicators and show movement after the trade occurs. Knowing that Bollinger Bands are lagging will help you to understand why the external deviation lines are not perfect. Again pay special attention to how the "bands" (both of them) react to approaching price for a revelation on where price is headed. In this respect Bollinger bands is as much a perfect tool for trading as it gets.
Bollinger band width refers to deviations from the mean. The mean is the average. The default setting is usually 2.0 standard deviations and that's fine. Price will trade within the 2.0 standard deviation range approximately 90% of the time. I like to lay down an additional 2.5, and 3.0 standard deviation right over my 2.0. Combining candlestick pattern analysis with these entry zones makes for a good system. - 15224
About the Author:
Bollinger bands may seem confusing at first, but they are absolutely the most telling technical indicatior you will ever come across. To get your hands on Mark Deatons latest Bollinger band tips and tricks visit us at http://www.bollingerbandgenius.com
