Trading strategy uncovered: How to put Bollinger Bands to work for you

Julie Brownlee, Fsp Invest, 21 Jul. 2014

Tags: bollinger bands, using bollinger bands, trading strategy, technical indicator, charting, trading, investing,

Bollinger Bands are a great technical indicator to use. They can be very useful in helping you time your trades.

So how can you use them best? And how should you use Bollinger Bands as part of your trading strategy?

Read on to find out…

Using Bollinger Bands on your charting software

Bollinger Bands show you the volatility of the underlying share or index you’re looking at. You can read more about how this works here.

You’ll find that the majority of charting packages let you use Bollinger Bands. Depending on the package you use, you might be able to change the days you use for the moving average, or the number of standard deviations (the measure of volatility).

The main things you need to pay attention to when you use Bollinger Bands are the following:
  • Select the company or index you want to trade.
  • Choose the period you want to chart. This will usually range from a day to multiple years. A six-month chart is a good starting point.
  • A good setting to start with, and generally the default setting, is 20-day moving average and two standard deviations.

Make Bollinger Bands part of your routine

No, Bollinger Bands aren’t always correct, but they do have a good hit rate. Nor do Bollinger Bands tell you about what’s going on with a company or the forces at play on the market.

Having that additional knowledge is definitely a good thing.

But one of the greatest advantages of Bollinger Bands is their usefulness in helping you to take the emotions out of when to put on a trade or exit it. And this will also help you get in and out of a trade at a better price.

It makes sense to run this chart everyday on investments that you’re interested in. It can help you buy low and sell high.

So there you have it, how to put Bollinger Bands to work for you.

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