![]() ![]() Rule #1: Set the Bollinger Bands Moving Average Length to 20 Well really it actually has just 2 rules if you do not change the default settings for the indicator. If the bands are narrowing that usually indicates a large breakout of some kind is coming soon. If the top and bottom bands are narrow this means that volatility is low, which means that we should be buying options and if the bands are very wide then that implies high volatility so we should be selling options and collecting premium. When the current price is near the top band the security is said to be overbought and when its near the lower band its said to be oversold. The top band is 2 standard deviations above the middle band and the bottom band is 2 standard deviations below the middle band. ![]() The middle band is typically the 20-day simple moving average. It consists of a channel, basically 3 data points, or bands. ![]() Remember though that no strategy works with all markets so its absolutely critical that you always use a back-test to determine if this strategy is viable for whatever market and period that you are trading. This strategy doesn’t trigger a lot of buy signals but when those signals are triggered I highly recommend that you consider taking advantage of them. The indicator we are using today is known as the Bollinger Bands. An indicator is just an overlay we add to a candlestick chart to better understand the price action. Today I’m going to teach you a strategy known as the Basic Bollinger. ![]()
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