Wednesday, 24 January 2018

Bollinger Bands: Are They Any Good?

Posted by FortFS at 09:34 Labels: ,

If you are giving your first steps in trading, we are almost entirely sure you’ve heard about “Bollinger Bands”. However, the large amount of information out there can be confusing.

For that reason, we put together a simple, yet useful explanation about them with a practical approach so you can start using them right away. Let’s begin!

Basic notions

Bollinger Bands - a technical indicator developed by John Bollinger to gauge the volatility of a given asset. The tool is especially useful to identify periods of market stress.

How it works

The two bands that integrate the indicator expand when market is facing high volatility, while in periods of quietness they create a narrower channel.

What you should look at

If you were expecting to get a mathematical formula here, you came to the wrong blog. In fact, we think it is much easier and practical for you to get the sense of how it works and how you can apply Bollinger Bands in your trading.

Bollinger Bounce

The most common idea behind Bollinger Bands and why many traders use this simple indicator is because price tends to always return to the middle of the channel.

When the price reaches the top of the channel, it will most likely turn downwards. The same logic goes viceversa. Therefore, a trader could speculate an open a bullish position when price hits the lower band and set a take profit order near the upper band.

In this case, a trader uses Bollinger bands as resistance / support levels. If you are trading in short timeframes, using Bollinger bands might not be the best indicator for you and you could see many breaks above and below them that will distort your signals.

Bollinger Squeeze


When price goes beyond the upper or lower band, causing the channel to quickly expand. If the price breaks above the upper band, you should expect a rather solid upward extension. And the same goes for a break of the lower band.

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