Be sure to comment with your thoughts on Bollinger bands and some techniques that you use in short term trading. Bollinger Bands are a great indicator with many advantages, but unfortunately many traders don't know how to use this amazing indicator.
Before I show you how I use it, let's quickly review what exactly Bollinger Bands are. If you look at the following images you see the Moving Average displayed as a solid blue line and the Upper and Lower Bollinger Bands as dotted blue lines.
In MarketClub the lines are red. With this being the case, many traders use Bollinger Bands to trade a simple trend fading strategy: This actually works reasonably well in a sideways market, but in a trending market you get burned.
I use indicators to determine the direction of the market, and decide whether the market is trending or not. And Bollinger Bands are one of the three indicators that I use for this task. For short term trading I prefer to use a moving average of 12 bars and a standard deviation of 2 for my settings. In many charting software packages the standard settings for the Bollinger Bands are for the moving average and 2 for the standard deviation.
John Bollinger suggests a setting of , and for me the best setting is With these settings you will find that in an uptrend, the Upper Bollinger Band points nicely up and prices are constantly touching the Upper Bollinger Band. The same is true for a downtrend: Well, the first warning sign that the trend might be over is when prices are moving away from the Bollinger Band.
And you know that an uptrend is over, at least for now, when the Upper Bollinger Band flattens. The same applies to downtrends: The first warning sign that a downtrend is over is when prices are moving away from the Lower Bollinger Band, so they are no longer touching the Lower Bollinger Band. And you know that the move is over when the Lower Bollinger Band flattens.
Well, if you use a trend-following strategy, you start looking for LONG entries as soon as you see the Upper Bollinger Band pointing nicely up with prices touching the Upper Bollinger Band. And when the Upper Bollinger Band flattens, you exit your long position, since you know that the trend is over. You see, when the market is moving sideways, you don't make any money being in the market just hoping that the market will continue to trend.
So exit the position before the market turns around, because you can always re-enter when you see that the market is trending again. I then enter at the Upper Bollinger Band with a stop order, waiting for the market to come to me. This strategy is really beyond the scope of this article since we are focusing on Bollinger Bands, but this is exactly how I use Bollinger Bands to determine the direction of the market and decide on the trading strategy I will use.
So as long as the Upper Bollinger Band is nicely pointing up or down, I am looking for entries according to my trend-following strategies like the Simple Strategy. Once the Bollinger Bands flatten, I am looking for entries according to the sideways strategies I trade. You always want to trade a trend-following strategy in a trending market and a trend-fading strategy in a sideways market.
As you can see, Bollinger Bands offer tremendous help to determine the direction of the market and decide what trading strategy to use. Many traders learn how to use Bollinger Bands to fade the market, but they can be even more powerful when used to trade trends, and in determining the direction of the market.
Your article about BB is very good. Really BB is a good indicator to measure the volatility. I use BB with candelsticks supported by price and volume indicators. I would like to know how you trade BB squeeze. For me the Squeeze or constriction is a opportunity to catch breakouts,and if you antecipate your order your r the winner.
But sometimes is very difficult to know if the breakout will go up or down. Can you tell me how you trade this strategy? You are exactly right. Too many people have so much going on their charts they are too late on making a move. I trade options and love Bollinger Bands. As for Mohamad we all had to go through the learning curve and obtain information wherever we could. However there are a lot of education sites available to you and many books on the subject of stock trading.
Yes, la Morhamad, you are the definition of "stupid money. In all honesty the middle east religions confuses me so much I don't even bother trying to figure everything out. I wish I had the time but I don't. I have nothing again't Muslims. I'm not an arrogant or culturally insensitive person and my comment had absolutely nothing to do with you're race, ethnicity or religion. I'm aware of the fact that this is a big world and we have a lot of different people with different people living in it so how bout we leave it at that?
The reason I called you stupid is not because of your poor grammar. I'd assume English is not your first language and that is fine.
I was able to understand your message fine which is why I called you a stupid investor. I have nothing against people like you because you help people like myself and others here at MarketClub money by taking the wrong side of a position. You Iajustin Miller says about me stupid Why do you say I am stupid With the level of intelligence you're likely to have based on the grammar in your sentence you have no chance.
You can play as much as you want with different indicators settings, none will be better or lesser than the other. A setting will work nicely for a while then not so well afterwards. Use it on another underlier then it won't work at all So I use very few indicators with the defaults settings given in every software. Indicators are just what they are "indicators" but the real thing is the tape. So learning reading the tape is the must be done and main focus.
I thought many traders liked to adjust the MACD default settings for short term trades But I guess in this case, the default are sufficient but I'd be interested to hear from anyone who has had success trading intraday especially ES with different MACD settings.
Thanks for the feedback. I've been testing different MACD settings for short time trading but so far my back tests have had little success. I'll give this one a try. As for the ATR, have you considered a 10 period? You might find this works well with intraday trading. Don - to get 15 days to show up it had to be 30 minutes chart for the chart examples above. Is there any one help me in any way.. Emily Mohamad 14 7 1 hotmail. This of course would be on the daily or weekly charts.
I just recently added this to the weekly chart. I wonder what his thoughts are on the use of the BB for longer term charts. Nevertheless, it is another tool that is helpful, despite it being a lagging indicator.
ATR - don't know that one. We were trying different settings including the 2 min chart. Wilder RSI normally is for short term trading.
I have never had success with short term so I have been a longer term investor since , but the last 4 years the longer focus has nearly disappeared and I am looking to modify my investing.
The maths are easy. To achieve this without overtrading is just a matter of maintaining your risk management and I increase my lot size accordingly with each trade so it reflects the growing balance to maintain the exact ratio as when making the initial trade. Forex has taken me on quite a journey and when I arrived at this goal and the discipline to trade in this manner I have found my trading to be successful.
Hope this helps as Forex provides the opportunity to have big dreams but like anything it's the breaking it down into sizeable chunks that allows us to see the possibility is there.
And by the way, this is a great post, which I haven't seen in quite some time! Poorman, I'm glad you were able to take a look my indicator videos. I want to avoid analysis paralysis from using too many indicators, but I feel it is important to use 2 or more indicators I use 3 to determine the direction of the market and have found that MACD and RSI are nice compliments to Bollinger Bands.
Dee Dee, thanks for your post! Security prices are not normally distributed. I started using his forex website, BBForex. Have been a longer term investor since , but finding the going rough the last few years.
Never traded short term before as it always backfired with longer term tools. I really like the potential here. Sometimes over analysis is the worst analysis. Not eveyone has a chart full of indicators. I'm still learning, but to me, the more cluttered the chart, the less you see. Is one help me in order to compensate the progress of my entry and exit points in trading this my email.. I hope anyone help me.
This is terrific info. What setting do you use for MACD? I see the sample is 30 min and bb of 12,2,2 setting.More...