Bollinger bands are a favorite indicator of many traders. They are very easy to use, intuitive understandable and they can tell a lot about the market, should you just look at them. So, how to use Bollinger bands to make money?
Three easy steps to Bollinger bands use
- Wait until a price reaches to one of the outer sections. A little math lesson about a standard deviation. The standard deviation is simply a statistical measure of a random variable dispersion relatively its expectation. Is it not clear? In short, the outer Bollinger bands limit a standard deviation, so when the price hits the outer band, this means that it is in the unusual extreme value. What can you think if the price reaches unusual values? In this case, there is a possibility that the price should return to normal. That is, when the price hits the outer Bollinger band, you should wait for a market reversal.
- Use the Japanese candles, support and resistance lines, and stochastic. For example, we know that the market needs to turn around, how will you know when will it happen? You need a confirmation of a rebound from the outer bands. For example, it can be the Japanese candles reversal model. Or you can use the stochastic indicator, which changes its direction and moves to center when the market is turning. If the outer Bollinger band is also support or resistance line, it also is a great indication that the price will change its direction.
- Watch to the breakthroughs. The Bollinger bands by an amazing way show a market volatility. You will definitely be able to notice the narrowing of the Bollinger bands, which means calm in the market. However, calm portends a storm, so if you see that the Bollinger bands are closer to each other, you should switch to a breakout strategy and get ready to a serious money earn.