How to Use Bollinger Bands® - Candlestick Patterns Explained by TechniTrader®

Bollinger Bands Use Explained for Beginners

Bollinger Bands are used as a technical indicator that helps Retail Traders read stock charts more easily. Bollinger Bands are a Channel Indicator. Channel Indicators are lines that are drawn above and below the price on the chart by the computer software program. The difference between Bollinger Bands and other Channel Indicators is that Bollinger Bands expand and contract with the dimensions of the candlesticks or bar chart price.

Oftentimes, a beginner who is just learning how to read candlesticks has a difficult time seeing sideways price action and when a compression pattern is forming. Compressions are important technical patterns to recognize early because these tight price patterns end with a sudden velocity or momentum run up or down. By using Bollinger Bands which are a line above and below the candlesticks on the chart, compression patterns are easier to see so that a Retail Trader can prepare in advance for the breakout move.

A breakout move is when price suddenly moves out of the tight sideways candlestick pattern and runs up or down many points. Bollinger Bands are the best Channel Indicators to use due to their unique way that the bands expand and contract with price. When the Bollinger Bands become narrow, this is indicative of a compression of price with the potential for a big price move. The tighter the Bollinger Bands are, the more momentum is likely to occur.

Bollinger Bands can be placed on price charts, candlesticks, stock volume bars, and other line indicators. When using Bollinger Bands, do not also use Moving Averages or Regression Line Indicators on the chart, as this will make it harder to read and identify the Bollinger Bands compression patterns.

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Trade Wisely,

Martha Stokes CMT

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses