In today's video we are going to take a look at Bollinger Bands. They are a VERY popular indicator that several traders use to get in and out of positions all day and can give you some very solid patterns to trade with.
Bollinger Bands can be used in many ways, but the two most effective ways to use them are for breakouts and price-reversals.
The Definition of Bollinger Bands:
Bollinger Bands were invented by John Bollinger, and they are used to identify price volatility using “standard deviation” around a simple moving-average.
As volatility changes, the Bollinger Bands expand and contract and provide professionals with trading opportunities in many different ways.
Finding Breakout Opportunities with Bollinger Bands:
One of the easiest ways to use Bollinger Bands is to look for times during the day when the bands are VERY NARROW. When the bands get narrow and close together it tells us that volatility is very low, and we should expect to see a breakout very soon.
|Bollinger Bands Breakout|
Enter a Trade (LONG) using the Bollinger Bands:
The most effective way to trade with Bollinger Bands is to combine multiple chart timeframes using 2 charts, anchor and entry.
We will follow the long-term-trend and enter trades in the same direction as the trend when price has tested the highs/lows of both charts’ Bollinger Bands.
· Step 1: Define the long-term-trend using a slower chart timeframe
· Step 2: Wait for price to test the lows of the Bands on the Anchor chart
· Step 3: Wait for price to test the lows of the Bands on the Entry chart
· Step 4: enter long at the lows of the Bands on the entry chart
Place your Profit-targets using the Bollinger Bands
· Place two profit-targets, using the ANCHOR chart; first at the mid-line, and second at the highs of the Bollinger Bands. This will achieve a very large profit-target because you will use the anchor chart.
· Place your stop-loss 3 ticks below the low of the entry bar on the entry chart. This will achieve a low-risk trade, with a high reward, because you are using the entry chart for the stop-loss and the anchor chart for the profit-targets.
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