Simple Techniques for Interpreting Bollinger Bands
Trading with Bollinger Bands is easily enhanced with a few simple techniques you can start using right away. The first step is proper interpretation of Bollinger Bands for stock trading. There are Bollinger Bands trading signals you can learn by simply adding another indicator with Bollinger Bands, to give you a complete data set for your stock pick analysis.
Bollinger Bands help you to see compression candlestick patterns prior to sudden breakouts, which lead to stock prices moving with momentum or velocity. However Bollinger Bands cannot tell you the direction of the breakout without additional information. All you need to do is learn how to use essential indicators with Bollinger Bands, to dramatically improve your interpretation.
Using a well-rounded set of indicators gives a higher degree of certainty about the direction the stock will move after the Bollinger Bands compression. These patterns are perfect for Day, Swing, Momentum, Options Premium, and Position Style Trades. Which Bollinger Bands trading signals you use depends on your Trading Style.
There are numerous Bollinger Bands trading signals that help you get into a stock before the huge High Frequency Trader runs, gaps, and giant candles. Many traders find themselves on the wrong side of the trade when High Frequency Trader orders trigger.
By using the 5 Essential indicators from TechniTrader specifically designed for StockCharts.com Users, Bollinger Bands can become a powerful multi-use tool that provides better trading opportunities with less work.
The most common problem with using Bollinger Bands is determining which direction the stock will break out. If you only use Bollinger Bands, there is no confirmation of the breakout direction. Even John Bollinger, during a luncheon with me years ago, agreed that Bollinger Bands must be used in conjunction with other indicators to confirm a breakout.
Below is a candlestick chart example of a Bollinger Bands compression pattern. Just using the bands and candlesticks, or even other price and time indicators, the assumption could be that the breakout will be to the upside. Buying the stock with the assumption of an upside breakout is a common mistake of traders using Bollinger Bands.
Martha Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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