Best Bollinger Bands Settings

Browse our collection of platform trading tutorials​ to get started. A stochastic indicator​ is another well-known technical analysis tool. Like Bollinger Bands, Stochastic indicators can help traders identify overbought and oversold levels. Values are compared to Bollinger Bands at 1.0 standard deviation above and below the selected moving average.

Bollinger uses these various M patterns with Bollinger Bands to identify M-Tops, which are essentially the opposite of W-Bottoms. According to Bollinger, tops are usually more complicated and drawn out than bottoms. Double tops, head-and-shoulders patterns, and diamonds represent evolving tops. Bollinger Bands are often used to identify M-Tops and W-Bottoms or to determine the strength of the trend. Using the trend guidelines, here are the summary guidelines for spotting reversals.

Bollinger bands settings for swing trading

As we previously mentioned, Bollinger Bands indicator measures the volatility on the market. A narrow band means indecision on price movement and when this happens, it is almost always guaranteed that markets are about to move either up or down. The Bollinger Bands are trading bands that focus on volatility. By allowing the movement of prices themselves to set the width of the bands, John Bollinger’s Bollinger Bands can react quickly to market conditions. Bollinger Bands have now been around for three decades and are still one of the most popular technical analysis indicators on the market. That really says a lot about their usefulness and effectiveness.

A double bottom occurs when there is a fall in price, followed by a rise, followed by another fall that is close to the previous low, and finally another rise. With this strategy, I want to satisfy 3 conditions before I open a position. I was using volatility bands but without this unique knowledge and usually l was about to fade out. If the bands are sideways i place my take profit a few points below the upper band. I’ve never used this indicator before and after following Mr Bollinger on twitter for a while now, I’m more interested to consider his indicator in my charts. The Bollinger Bands indicator is great for identifying areas of value on your chart.

Daily Price Chart

For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2. Colors – here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color.

It’s popular among beginner traders due to its simplicity. Many professionals favor stochastic oscillators because of their signal accuracy and versatile applications. Bollinger Bands should be used in conjunction with other technical analysis tools. You can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now.

Bollinger Bands

Normally, these price channels move across the chart symmetrically, but the distance between the bands varies significantly in certain market conditions. The volume-weighted average price is another tool that traders can use to spot trends and otherwise assess market data. While both Bollinger bands and VWAPs track the average price, VWAP also accounts for the volume of transactions at any given price. This can be a crucial difference for traders who use volume as a part of their trading strategy. A Bollinger Band® is a momentum indicator used in technical analysis that depicts two standard deviations above and below a simple moving average.

The https://forexarena.net/ is likely to head up when it is higher than the 20-period MA and when it goes beyond the upper band. The upper band demonstrates statistically higher prices. Some prefer to connect the top or bottom of the price to determine the upper or lower extremes.

Essentially you are waiting for the https://forexaggregator.com/ to bounce off the bands back to the middle line, which carries a high winning percentage over time. Notice how NIO gapped up over the upper band on the open, had a small retracement back inside of the bands, then later exceeded the high of the first candlestick. These sorts of setups can prove powerful if they end up riding the bands. To the earlier point, price penetration of the bands alone cannot be a reason to short or sell a stock.

We provide a risk-free environment to practice trading with real market data over the last 3 years. That doesn’t mean they can’t work for you, but my trading style requires me to use a clean chart. To this point, we applied bands to the Proshares VIX Short-Term Futures to see if there were any clues before the major price movement we discussed earlier. Notice how the Bollinger Bands width tested the .0087 level three times. The other point of note is that on each prior test, the high of the indicator made a new high, which implied the volatility was expanding after each quiet period.

Technically, prices are relatively high when above the upper band and relatively low when below the lower band. However, “relatively high” should not be regarded as bearish or as a sell signal. Likewise, “relatively low” should not be considered bullish or as a buy signal. As with other indicators, Bollinger Bands are not meant to be used as a stand-alone tool. Chartists should combine Bollinger Bands with basic trend analysis and other indicators for confirmation.

Ideally, we want a buy crossover above the 0 level and a sell crossover below the 0 level. But markets are not perfect, so we must adapt to current conditions. We use a higher number of periods on the CCI in order to smooth the indicator. The Commodity Channel Index is an oscillator used in technical analysis in order to measure the variation of a security’s price from its statistical mean. When the price reaches this area, we look at the Stochastic Oscillator to enter the market. Ideally, we want the Stochastic to be in an overbought area.

As you can see from the https://trading-market.org/, the first red candle after the highs was a bearish engulfing candle. The stock quickly rolled over and took an almost 5% dive in under 30 minutes. Using the same chart from above, we can see that the rally off the first low created a near term overbought scenario. After the rally commences, the price attempts to retest the most recent lows that have been set to challenge the vigor of the buying pressure that came in at that bottom.

• Adjust the indicator, and test it out with paper trades before using the indicator for live trades.
• Quite often, this rollback completes near the previous local low.
• The bandwidth, i.e. difference between the upper and the lower Bollinger Bands, corresponds to market volatility.
• When the price is constantly above the SMA, and hitting the upper band for a longer period of time, the market is in a trend.
• Most technical traders aim to profit from the strong uptrends before a reversal occurs.

As an example, we will use standard parameters – a 20-bar moving average and a multiplier with a factor of 2. At the same time, the price should not be outside the channel for longer than several candles. In range-bound markets, mean reversion strategies can work well, as prices travel between the two bands like a bouncing ball. However, Bollinger Bands® don’t always give accurate buy and sell signals. When trading with Bollinger Bands, traders should understand that standard settings will not suit all strategies.