Technical analysis makes much use of the Bollinger bands. These bands are used in stock market research to make a trade.
This indicator was developed by John Bollinger. It helps to calculate the unpredictability in the share market.
When trading online, you can plot this indicator on your chart. The Bollinger band tells you when the market is silent and when it is has a lot of activity.
When the market demonstrates no movement, the Bollinger band is likely to contract. Meanwhile, when there is a lot of movement in the market, they begin to expand. You can observe stock patterns along with the Bollinger band indicator to mark good trading opportunities in the market.
How to use Bollinger bands
Bollinger bands are used by technical traders to mark a rebound in the trade. It comprises of an upper band, a lower band and an average band which runs in the middle.
Price has a tendency to return to the middle of the band. The Bollinger bands are also used as support and resistance levels.
The better the Bollinger band indicator works on them when the time frame is higher. Many traders have developed winning strategies to trade based on the Bollinger band indicator.
The strategy works best when the market is likely to range and only move sideways.
There are some very clear indicators that the Bollinger band indicator gives.
When it starts to compress it indicates that there is going to be a breakout soon.
When the candle breaks the upper band or lower band of the Bollinger band, then it will start moving towards the middle band.
The strategies using the Bollinger bands are planned to catch a move straight away in the market.
These kinds of system are not rare mostly in some smaller time frame charts.
On the other hand, proper care is necessary when using the Bollinger band indicator. The indicator in itself is not sufficient to help you trade. They are only an assenting tool and are a lagging indicator.
You will need to first recognize high prospect support and resistance levels on your chart.
If you see the Bollinger band indicator also giving you a trade signal on those zones, then it boosts the likelihood of your trades.
Proper risk management and stop loss management is the key to a profitable trading portfolio.
It is thus imperative to have a stop loss in place before entering a trade.