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Bollinger Bands Strategy With 20 Period Trading System
Bollinger Bands Strategy With 20 Period Trading System
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(https://www.netpicks.com/go/pricepatternguide/)
Thinking Of Options?
(https://netpicks.isrefer.com/go/oft2016/stsempire/)
Using the standard bollinger band setting for this strategy, the lines are:
Top line is 2 standard deviations from the middle line to the upside
The middle line is a 20 period moving average
Lower line is 2 standard deviations to the downside from the moving average
Bollinger Bands
Standard Settings
Before you start changing the bollinger band settings looking for the best settings……I will tell you that
there is no “best” setting and anybody trying to sell you the perfect setting (or a secret bank setting) is
dishonest.
The theory is that the settings of the top and lower bands (the standard deviation from the moving average)
contain price action. Any price movement that touches or exceeds the upper or lower band show a market
that has increased volatility. This often can set up some great trading opportunities.
The bollinger bands are a technical indicator similar to the keltner channel
(http://www.netpicks.com/keltner-channel-trading-strategy/) as they are both bands and a measure of
volatility. One main difference is the keltner channel uses average true range for the calculation. Unlike
bollinger bands, keltner channels after a big price movement does not have the “balloon” effect that the
bollinger has.
1. If price is moving below the 20 period middle line then the market is in a downtrend.
2. If price is moving above the 20 period , consider the market is in an uptrend.
3. Use the angle of the middle line if price exceeds the moving average.
Bollinger band buy signal
We need to see price moving above the middle line of the bollinger band. Once
we see price moving in that direction, we’d like to see price pierce the upper
band and begin to pull back
You want to see price pullback into the area of the middle line to initiate a buy
signal. You will then look for a price action (http://swing-trading-
strategies.com/price-action-trading/) setup that shows price has a probability of
travelling back to the upside. You can also use an opposing trend line break for
entry.
For selling, we want to see price visit the lower part of the band and either touch
or pierce the bands. From there, price pulls back into the area around the 20
period moving average middle line. You can also use an opposing trend line
break for entry.
(http://swing-trading-
strategies.com/wp-
content/uploads/2012/08/Bollinger-
Band-Moving-Average-Swing-
Trading-System.png)
Like the buy signal, we want to see price action showing intent of moving back
lower.
One price has touched the middle line for a buy or sell signal, look for price to travel to the upper or lower band to take your trading profits.
You can also use a Fibonacci (http://swing-
trading-strategies.com/how-to-draw-
fibonacci-retracement/)measurement for
profit taking and trade management.
This last trade is interesting and a lesson about price movement you should never ignore:
1. When you see such a bearish (or bullish) candlestick like this, you DO NOT want to trade against it. It shows, in this case, extreme weakness
2. Look to position in the direction of the extreme candlestick (in this case bearish) around the middle line or upper (or lower band)
This highlights that while technical indicators such as the bollinger band can aid you in trading, price action will always rule.
This Bollinger Band Strategy Is Worth A Test
Bollinger bands can frame price and show you when there is an extreme move worth noting. Your trading system may require price movement touching or exceeding the
upper or lower bands before taking a trade
You can use these as a mean reversion (http://swing-trading-strategies.com/traders-action-zone-defined/) system or a continuation swing trading strategy. The mean reversion
aspect is a more advanced bollinger strategy and is shown in the second trade example in the last chart.
Bollinger bands can keep you objective in your trading by offering you not only a place to consider a trade, but areas to consider taking profits as described above.
Whatever way you choose to use the bollinger bands as part of a swing trading strategy, ensure you test it and log a trade plan so you can stay on track.
Please don’t forget to tweet and share this post by clicking those buttons below if you’ve enjoyed this.
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