Trading Bollinger Bands
Bollinger Bands was invented by John Bollinger still in the eighties of the 20th century and immediately proved to be the most frequently used tool when using technical analysis . At the heart of the Bollinger Bands - three lines - the upper, middle and bottom. And they are used to identify extreme price values ??trading tool.
What does the data represent the band?
upper band Bollinger - is nothing more than a territory perekupennosti trading tool , lower band-oversold territory trading tool . To get better picture of the market and this indicator is used - Bollinger, but it often also used in conjunction with other indicators!
But first propose to consider it separately from the others and to build the most simple forex trading strategy based on it. Bollinger bands are standard indicators POS Metatrader 4 .
To install it, go to the menu and choose MT4 - Insert / Indicators / Trends and activate the indicator - Bollindger Bands ).
The essence of simple forex strategy on Bollinger Bands:
Buy at the break lower Bollinger band indicator - this is a good way to use an oversold condition in its strategy. Very often, when the lower band is selling its way with great force, the price of a financial instrument again comes back, pierced above the lower band, and then comes to the middle Bollinger Band. That's how we try to profit by this indicator.
Consider Example 1 in the chart of the company Intel Corp. (INTC):
Below is an example of the system under ideal conditions.
Figure 1 shows us that on 22 December Intel stocks broke through the lower Bollinger band indicator and closed below this line. And it gave us an unequivocal signal to indicate that the action came in the oversold territory.
Our most simple strategy based on an indicator Bollinger expects a close below the lower band, and soon after that, the next day, according to her - should purchase the asset. This choice has led us to a great deal. December 26, after the opening of trading, has become the last day when shares were trading below Intel's lower band Bollinger. And from that day's stock of Intel went up, and even went above the upper Bollinger band indicator.
Consider Example 2 - New York Stock Exchange (NYX):
Another good example of successful use of this system you will see on the chart of the New York Stock Exchange as soon as it June 12, 2006 broke the lower Bollinger band indicator.
tool NYX has been oversold. Following the trading system, the trader will deliver an order to buy NYX in the market opening on June 13. The next day trading tool NYX again closed below the lower Bollinger band indicator, which probably caused some concern for some market participants, but it was the last time before the end of the month, when the action is so closed.
It's a great script, which hopes to catch a trading strategy. In Figure 2 we show the situation on the market, when the number of offerings has been extraordinary and, as Bollinger bands are able to adapt to the market situation, on June 12 was noted as the date of the most abundant sales. Opening a trading position June 13 allowed traders to enter trading just before the reversal.
Consider the example of a 3 - Yahoo Inc. (YHOO):
The following stocks Yahoo struck the lower Bollinger band December 20, 2006 trading strategy called for a quick purchase of these shares at the opening of the next trading day.
absolutely the same as in the previous example, shares of the company, squeezed by the sellers. In the hour when most traders are still selling this isntrument, our strategy calls for us a buy signal. Break of the lower Bollinger band indicator reports the oversold market. And the signal was correct, how much a stock Yahoo soon unfolded. December 26 shares of Yahoo again tested the lower boundary, but did not close below it. This was the last time point of testing the lower band of Bollinger Yahoo, because later share went up, reaching the top of the bars.
Bollinger band movement down:
It's no secret that every trading strategy has its advantages and disadvantages, and this too is no exception to the rule. In the following examples, we show limitations of the trading system and what can happen when the market does not develop on a planned our plan.
Once the strategy is making mistakes, continue to push through the bars, and you suddenly notice that the price continues its decline, moving along with the down Bollinger. And no sorry, but the price is not rolled back soon, which may cause our expense to significant losses in trade. Ultimately, this strategy often turns out to be right, but a large number of traders are not able to withstand market decline that may occur before the correction.
Consider Example 4 - International Business Machines (IBM):
For example, February 26, 2007 IBM stock closed below the lower Bollinger band indicator. Selling pressure has led this rally in oversold territory. Trading strategy recommended buying the stock at the opening of the next trading day. Like the previous examples, the next trading day the market began to fall during the day, but this case was unusual - a large number of offerings made this action davolno powerfully to go down. Sales of shares and continued after that day, when our stock was bought and the price closes below the lower band for the next 4 trading days. But finally, on March 5 selling pressure was exhausted and turned and went back again rally to the middle Bollinger Band. But to my deep regret, to this point has already been fixed loss in the trading account.
Consider the example of 5 - Apple Computer Inc. (AAPL):
In the following example, Apple's stock closed below the lower Bollinger band 21.12. 2006.
Our strategy is required to buy Apple shares on December 22. The next day trading stock made dvidenie down. The influx of further proposals for the sale continued to lower stock price down to Toch long as she has not shown us the intraday low of $ 76.77 (much more than 6% below the entry level) in just 2 trading days after the opening of the position. In the end, December 27, started a correction, but for most traders traders who were not able to withstand short-term decline by 6% in two days, this correction has brought very little joy. This was the case when sales continued into oversold territory. In times of such sales, there is no way of knowing when they has ended.
And so what we learned:
trading strategy to use the lower Bollinger band indicator, the definition of oversold market was right. These conditions led to the correction of emergency stocks in the opposite direction to the middle Bollinger band indicator.
But there are situations when the trading strategy is right but the big sailed the selling is still continuing. In such situations there is no way to know when the selling pressure will come to an end. So when it was decided to conclude a deal to buy a business should join some sort of protection. In the case of shares NYX, they are well risen only after the close below the bottom line indicator Bollinger in the 2nd time. Trading strategy in this transaction was not mistaken.
and action by Apple, IBM shares behave a little differently - they do not have to come back after breaking the lower Bollinger band. Instead, they succumbed to further enhance the selling pressure and fell along the bottom of the bars. Very often it can cost dearly davolno. In the end, and Apple, and IBM still deployed, and it proves that the strategy of trade still holds. And not ordinary, but the best way to avoid losing trades associated with the fall of prices along Bollinger, is to use a protective stop-loss.
Summary of results of trading strategies on Bollinger Bands:
Buy at the break lower Bollinger band indicator - davolno simple trading strategy , which often works well. In each of the scenarios, the lower Bollinger band breaks occur in oversold this indicator. The timing of the trade deal are likely to become a big problem. Stocks that break through the lower Bollinger band indicator and included in this in oversold territory, faced with high pressure salesmen. This influx of proposals bears are often quickly corrected. As soon as this pressure drops, the shares continue to make new lows on the price chart, while being in oversold territory. In order to effectively use this trading strategy, you need a good tactic out of position. feet - this is the best way to protect your account from falling prices of shares along the lower Bollinger band and new lows.
stratetiya This is a simple example trade Bollinger Bands and published, to explain the main essence of this indicator, and further on this site will be considered more sophisticated strategy, applicable to the forex market to trade with Bollinger Bands .