Place the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the https://www.bigshotrading.info/ next reversal, or touching of the Bollinger Band opposite to the direction of the main movement. Some traders prefer to use an alternate version of the trending strategy that uses MACD instead of MFI.
The bollinger bands is a technical analysis tool that works on the basis of a moving average. The lag rate is calculated using the standard deviation multiplied by the specified factor. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars – 1.9. Most technicians will use Bollinger Bands® in conjunction with other indicators, but we wanted to take a look at a simple strategy that uses only the bands to make trading decisions.
Uses of Bollinger Bands
To effectively use this strategy, a good exit strategy is in order. Stop-loss orders are the best way to protect you from a stock that will continue to ride the lower band down and make new lows. In its most basic form, an M-Top is similar to a double top. However, the reaction highs are not always equal; the first high can be higher or lower than the second high.
- If the price pulls back within the uptrends, and it stays above the middle band and moves back to the upper band, that indicates a lot of strength.
- Usually, once a lower band has been broken due to heavy selling, the price of the stock will revert back above the lower band and head toward the middle band.
- Then, at regular intervals, the stop loss is pulled up by the price movement distance.
- Deviation of one or more parameters is considered acceptable.
- To do this, click on the «Indicators» button at the top of the chart.
- If the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick.
It is updated weekly and is available to all BollingerBands.com visitors. A double bottom occurs when there is a fall in price, followed by a rise, followed by another fall that is close to the previous low, and finally another rise. Here you can set up filters by technical and fundamental parameters.
Williams Alligator Indicator
Even though the stock moved above the upper band on an intraday basis, it did not CLOSE above the upper band. The M-Top was confirmed with a support break two weeks later. Additionally, the MACD formed a bearish divergence and moved below its signal line for confirmation.
The first indicator will be with a period of 20 candles and two standard deviations. The third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal.