What are Bollinger Bands and how do you read them?
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Hi, mooers!
Congratulations! You've arrived at the 2nd TA Challenge!
Created by John Bollinger in the 1980s, Bollinger Bands (BB) offer unique insights into stock prices and volatility. They can generate overbought/oversold signals, monitor breakouts, and determine whether prices are high or low on a relative basis.
The following image illustrates a few key points:
The following image illustrates a few key points:
Have you mastered the key points now?
Not yet? Don't worry. we've prepared a detailed description for you.
Not yet? Don't worry. we've prepared a detailed description for you.
1. Is the stock "cheap" or "expensive"?
If the price is near the upper Bollinger Band, it's considered "expensive" because it's 2 standard deviations above the average.
If the price is near the upper Bollinger Band, it's considered "expensive" because it's 2 standard deviations above the average.
Attention! Do not hit the trade button right away when it seems "cheap" or "expensive".
The price may remain "cheap" or "expensive" for an extended period, as shown below. We shouldn't blindly sell short when the price is at the upper band.
The price may remain "cheap" or "expensive" for an extended period, as shown below. We shouldn't blindly sell short when the price is at the upper band.
It's wise to avoid blindly chasing the sell or buy signals generated by the Bollinger Bands. When making investment decisions, we should combine the BB indicator with others to evaluate the current situation.
2. Dynamic Support & Resistance Levels
The upper and lower bands can act as dynamic resistance and support levels. Most traders believe there's a 95% chance of prices fluctuating within Bollinger Bands. The price trend in the chart below indicates the same.
The upper and lower bands can act as dynamic resistance and support levels. Most traders believe there's a 95% chance of prices fluctuating within Bollinger Bands. The price trend in the chart below indicates the same.
3. Overbought & Oversold Levels
An asset is considered overbought when traded at a relatively high price. Bollinger Bands can show whether the price reaches the upper band. The chance of the price going further up is low, so traders might look to sell the asset because the price is likely to fall towards the central moving average band.
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Likewise, oversold can be detected when the asset's price reaches the lower band. In this case, the price of the asset is relatively low. At this point, traders might buy the asset, expecting to make profits when the value reaches the middle band.
An asset is considered overbought when traded at a relatively high price. Bollinger Bands can show whether the price reaches the upper band. The chance of the price going further up is low, so traders might look to sell the asset because the price is likely to fall towards the central moving average band.
There is no guarantee that the prices will reverse in both scenarios just because they are too low or too high, so you might want to look at candlestick patterns and other indicators for further clues.
4. How do we identify the direction of a breakout?
Bollinger Bands contract when volatility is low and expand when volatility is high.
Bollinger Bands contract when volatility is low and expand when volatility is high.
How do we use Bollinger Bands to anticipate a possible breakout?
Volatility tends to expand after contraction. The longer the contraction is, the stronger the subsequent breakout will be.
Volatility tends to expand after contraction. The longer the contraction is, the stronger the subsequent breakout will be.
But how do we identify the direction of the breakout?
Keep a close eye on the trend.
Keep a close eye on the trend.
There are many more things you can do with Bollinger Bands. Please tell us more by writing instructional posts within the discussion.
Now, it's time to practice.![]()
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Let's select a specific stock and analyze it on moomoo! You might receive valuable tips from experienced mooers. Let's get started!
Now, it's time to practice.
Congratulations on completing the 1st part of the TA challenge-Bollinger Bands. Please stay tuned for the remaining 2 parts. ![]()
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Milk The Cow :
Sgtrader88 : Use Bollinger Band with optimised MACD, candle chart pattern, trendline and Fibonacci
Wessex : Overbought/oversold signals.
Identify moving average band.
steady Pom pipi : I'm not familiar with this yet, so let's study it together.
Milk The Cow steady Pom pipi:
WealthBuilder : The price always go back to band. When candle close inside candle. Start to action.
Gerald Kek : Does this indicator use on short term or long term? Need some guidance. Thanks.
atikalper0018 : What will I do now, where will I stay, look at the billionaire man, we will tweet on Twitter, nothing nothing help nothing all ,And my home is broken, I'm broken, death then
ManGooo : Overbought/oversold signals.
Identify moving average band.
HereForTheTrades : Bollinger bands are great to visualize trends and to give some indication of expected consolidation/volatility. The lower band can indicate oversold and a possibility for a long entry. A breakthrough on the midband and eventually target of upper band. Rejection on mid or upper band would indicate possibly short entry.
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