What Are Bollinger Bands?
Bollinger Bands are developed by John Bollinger. They were used to measure Market’s Volatality. Bollinger Bands are calculated as a Particular Period SMA and a Standard Deviation Levels.
It contains 3 Bands. In Daily Time Frame;
Upper Band : 20 Day SMA + (20Day SD X 2)
Milldle Band: 20 Day SMA
Lower Band : 20 Day SMA – (20Day SD X 2)
Bollinger Bands are plotted on top of the Chart
When the Price is moving Side Ways, those bands come closer.
When the Price is moving Upwards or Downwards, Bands move away(expand).
How to Use Bollinger Bands?
The Basic idea behind Bollinger Bands is that Price is tend to return to the middle of the Bands.
Bollinger Bounce: These Bands act as Support and Resistance.
Once Price reaches the Upper Band, Price is likely to go down.
In opposite to that Price reaches the Lower Band, Price is likely to move up.
Bollinger Squeeze: When the Bands squeeze together, it usually means that a breakout is getting ready to happen.
Whe the Candle break out the Upper Band, then the move will continue to go up.
When the Candle break down the Lower Band, then the move will continue to go down.
Remember, don’t trade based on only Bollinger Bands. Take the confirmation and then only trade.
Because, after breaking the Bands, instead of returning to the middle, the Price is likely to continue to Up or Down.