Bollinger Bands

Bollinger Bands

Bollinger Bands

Bollinger Bands are a great way to see how volatile a price can get. Charts using them have three lines on them and these lines are what you need to know how to use if you want to master this particular tool. We are here to help you with that – our experts will go over the basics in the simplest way possible, so that you can quickly grasp the point of it all. It’s really not that difficult and it’s always useful to learn something new, especially if you’re still a beginner in this business. So stay with us and read on!

Bollinger Bands | Three main lines

Like we said, three lines are the most important features of Bollinger Bands. The middle line or the moving average line will help you determine a trend’s direction. Other two lines are upper and lower bands and they represent standard deviation from the middle line. In other words, the price will fluctuate between upper and lower band most of the time and this conclusion is based on statistical data gathered on the price’s previous movement. Therefore, with some help from statistics, you can predict with a fair degree of certainty how much a price will move. In fact, some data suggests that it will remain between upper and lower bands 96% of the time, so you will be able to use your charts better. But let’s now take a closer look at how to use Bollinger Bands correctly.

Bollinger Bands | How to use them?

Because of all aforementioned characteristics, Bollinger Bands function great as Indicators because with them you get to easily verify support and resistance levels. It is also important to examine their shape because if the bands are narrow that means that the market is unsure about the price’s direction. Similarly, if the price remains on the upper or the lower band for a while, this too indicates an indecisive market. Also, since Bollinger Bands are curved lines, it pays off to look at their direction. Depending on whether they’re sideways or tilted, you can deduce a price’s trend, since sideway bands imply a break before the continuation of a trend.

Bollinger Bands | Conclusion

As you can see, using Bollinger Bands is not that hard and you get fairly reliable data from that. Three main lines show you where the price will move most of the time, so you always have a pretty good idea of what to expect. Of course, you can also combine them with other tools to get more accurate information, but even if you use them on their own you can hope for good results. Even beginners should be able to get the hang of using these bands quickly, so if you’re just beginning your trading career, this might be what you want to start examining first.  

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FURTHER READING:

1. Moats: The Competitive Advantages Of Buffet & Munger Businesses (B. Labitan, 2012)
2. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (N. Taleb, 2005)
3. Applying extending classifier system to develop an option-operation suggestion model of intraday trading–An example of Taiwan index option (AP Chen, YC Chen, WC Tseng – 2005)
4. The Alchemy Of Finance (G. Soros, 2007)
5. The Intelligent Investor (B. Graham, 1973)

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Author: Ben Prescott
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