Bollinger Bands
Stock Scalpers LLC.
Bollinger Bands
May 12, 2020
What are Bollinger Bands?
Bollinger Bands(BB) are a tool a trader can utilize during technical analysis to determine if prices are high or low on a relative basis. BB, like any bands, are built around a central tendency such as a moving average or any other relative indicator.
Trading with BB
Bollinger Squeeze (breakouts) When the upper and lower BB are moving towards one another or the space between them is narrow it is a sign the market is consolidating. A consolidation phase is suggestive of a current non-directional market. This will appear on a chart as though the top and bottom bands are both "squeezing" the price. This is where we watch for the breakout! An upside breakout can be confirmed when the price closes above a resistance line and above the upper BB. The downside breakout is the reverse. It is also optimal to see the bands (upper and lower) start to widen during a breakout scenario. This is suggestive of an increase in volatility and thus the opposite of consolidation.
Bollinger Squeeze (breakouts) When the upper and lower BB are moving towards one another or the space between them is narrow it is a sign the market is consolidating. A consolidation phase is suggestive of a current non-directional market. This will appear on a chart as though the top and bottom bands are both "squeezing" the price. This is where we watch for the breakout! An upside breakout can be confirmed when the price closes above a resistance line and above the upper BB. The downside breakout is the reverse. It is also optimal to see the bands (upper and lower) start to widen during a breakout scenario. This is suggestive of an increase in volatility and thus the opposite of consolidation.
Short Version
Narrow bands indicate consolidation and low market volatility. Widening bands suggest an increase in volatility.
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Virginia Beach, Virginia
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