What are the Bollinger Bands?
Bollinger Bands are very simple and useful indicators, which a day trader needs in his toolbox.
You may ask, what is a trader’s toolbox? Just as any craftsman needs tools to help him in his trade, so does a trader need tools to make his trading more effective and successful.
The Bollinger Bands are one of these powerful tools.
There must be a multitude of ways to gain winning trades, but applying the Bollinger Bands is definitely one of them.
Work with the Bollinger Bands indicator in the same manner that you would use your tools from a toolbox.
The Bollinger Bands were developed by John Bollinger, hence the name. They are used to measure movements when a market is volatile.
So what this tool does, is that it tells us whether the market is Quiet or Active. When the market is passive and making snail like movements, the bands contract. But when the market is Active, and on fire, the bands expand. As we have already learnt from previous educational articles, NEVER TRADE when the market is sleepy. Restrict your trading when the party is rocking with a lot of price action.
Notice from the chart below, how the bands contract and expand depending on the price movement.
Though the indicator is simple, it is very powerful. We will now demonstrate how to use the Bollinger Band effectively in your daily trading.
The Bollinger Bounce
There is one thing that you can be sure of in trading. At some point the price will always return to the middle of the bands. When the price hits the top of the bands, and exits, you can rest assured that the price will go down again towards the middle.
On the other hand, when the price hits the bottom of the bands, and exits the brackets, you can deduce that the price will rise again and go towards the middle. We can refer to the same chart to see the points where a day trader could be making some lucrative trades!
Come on Bollinger, show me the Money!
What the bands are effectively doing is, that they are acting as a resistance and support level. What we have previously called the “brackets” are in fact the support (bottom) and resistance (top) level. This is very clear when the bands are wide. When the market is “quiet” we have a “ranging” market. With a ranging market, you will never have the sharp drop or escalation that we obviously need to put us safely in the money whilst trading. To know that you have a ranging market and avoid it, you need to look for the Bollinger “brackets” and see that they are narrow and parallel.
The Bollinger Squeeze
The Bollinger Squeeze is a great alert indicator. It shows us that something exciting is cooking in the pot. It is very easy to detect, and it is self-explanatory. When the bands squeeze together, it is as if they are rubbing their hands in glee, in preparation for a price break-out. This is the point, where we can use this information to your advantage and take some colossal winning trades.
If we look at the charts below, we can see that the bands squeezed together very tight, and soon after we had a beautiful price hike as high as Mount Everest. This would have been a perfect opportunity to gain on multiple trades.
The secret to success is to catch the movement as early as possible. Above is a perfect set-up, which does not happen every day, but if you spot these squeezes a couple of times per week you could be looking at a very nice return.
We hope that this article has shed some light on how to use the Bollinger Bands as a tool in your trading tool kit. We recommend that you launch Net Station on Net Dania, which is free of charge, and you can experiment with different time frames and the Bollinger Band tools. If you go into historical data, you will certainly find many occasions where plenty of money could be made.
Watch Sheriff’s video review on Bollinger Squeeze
Below is a live trading session using Bollinger Bands with an 80% success rate.
If you wish to follow Snir Yamin on Mike’s Manual Signals Group, drop us an email on support(at)binaryoptionsheriff.com and we will give you an introduction.