DAY TRADING STRATEGIES: A GUIDE FOR BEGINNERS TO START DAY TRADING. LEARN ALL THE MOST EFFECTIVE STRATEGIES TO INVEST MONEY AND MAKE PROFIT ONLINE, INCLUDING A FOCUS ON RISK MANAGEMENT by EDUARD SMITH

Author:EDUARD SMITH [SMITH, EDUARD]
Language: eng
Format: epub
Published: 2020-09-18T22:00:00+00:00

Bollinger Bands

Finding points on which trends reverse is crucial for swing trading success. But equally important is finding reliable support and resistance lines. For the latter, Bollinger bands can be a very great help.

Bollinger bands are dynamic, i.e., they change every day according to actual movements in the security’s price. Therefore, the price bands, i.e., support and resistance levels reflect the most recent price movements and their momentum and change daily. This may be considered as a more accurate and objective way of determining support and resistance levels compared to drawing static lines on price charts.

There are three parts to a Bollinger band: The upper band, the lower band, and the middle. The middle part is the simple moving average line, the default period of which is usually set to 20 days, but you can set it differently according to your trading platform. The upper band, i.e., the resistance level, is two standard deviations above the moving average. The lower band, i.e., the support level, is two standard deviations below the moving average.

What’s the significance of the upper and lower bands? When a security’s actual price is very close to one of the bands, it means that the security is already overbought (if close to the upper band) or oversold (if close to the lower band). If a security is already oversold, selling pressure has already weakened to the point that buying pressure can start pushing prices up. If a security is already overbought, it means that buying pressure has already reduced to the point that selling pressure has become greater and is already pushing prices down.

What about overbought and oversold? When a security is already oversold and prices go below the lower part of the Bollinger band, it’s an excellent time to enter and take a long position or close a short position because the bulls are already in control. When a security is already overbought and a security’s price goes above the upper Bollinger band, it’s an excellent time to either take a short position or close an open long position.

However, it’s not wise to rely solely on the Bollinger bands to time your swing trades. The best way to use it is by following other indicators and price chart patterns. The Bollinger band should merely be an additional metric for consideration.

The width of the Bollinger band indicates how volatile a security’s price is. The wider the band, the higher the volatility and vice-versa.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.