How to Find Excellent Momentum Trades
Bollinger Bands are often used on the price chart itself, and can be used on indicators as well. However, there are other indicators written by John Bollinger that give Swing and Day Traders an easier way to not only find strong momentum runs, but to determine strength and run direction.
Bollinger Bands %B is rarely used by Retail Traders but is a favorite among many Professional Traders. This line indicator can be set at various period settings allowing for customization to your Trading Style, your preferred entry signal, and to lower risk at entry of whipsaw action.
By adding a Subordinate Indicator to the %B you are able to use the positive divergence for uptrend runs, and negative divergence for downtrend runs. This gives you a precise confirmation of entry for higher Swing Trading profits.
In addition %B has several other patterns it forms warning of extreme price action before a retracement, and the short-term bottoming pattern of Bollinger Bands B5 for reversals and rebounds after a minor short-term correction. By using %B you are able to enter sooner for more points gained per trade.
The chart below shows the Peaks of %B that warn of profit taking on the short-term or daily trend, which is a reliable exit indicator signal. The chart also shows an extreme low indicating the move down has ended and that the stock is going to head up after the consolidation.
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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