This means the price has broken above the range, and now we have an uptrend. While this does not initially signal the end of the bullish move, it is a warning that the end may be near. So we learned that the close price is very important when we work with Bollinger Bands. Hey Chris my confidence in trading confidently increases by every article of yours I read even without paying a dime More grease to your elbow and more assets in your arsenal,you did quite well and God will bless all your pips Thanks. Click here to download this spreadsheet example. If the consolidation is coming after an uptrend, the Bollinger bands will slope up sharply. Do I need to consider all this turning points as resistance or just only clockwise?
However although point 2 is a “higher high” in terms of the absolute price level for the stock the Bollinger band shows that this price level is easily contained within the upper band. This is an early sign that the stock is losing its upward momentum.
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You could use the same strategy just inverted if you were bearish on a stock. When stock prices reach the upper Bollinger Band, this is often a sign that they are overbought or becoming extended in the short term. Then I watch to see if the stock consolidates sideways or pulls back and time my next entry accordingly…. When stock prices reach the lower Bollinger Band, this is often a sign that stocks are oversold or becoming extended to the downside. I also usually look for Bollinger Bands to coincide with support or other oversold indicators.
When stocks are at their bottom Bollinger Band and they are at strong support trend lines you can usually get a good entry for a short to medium-term swing trade. The middle Bollinger Band is actually the 20 period moving average.
If a stock is pulling back from the upper or lower Bollinger band and shoots right through the middle Bollinger band then it usually pays to wait for the stock to go the opposite Bollinger band.
Now that you know the main uses for Bollinger band strategy in swing trading, here is one more use case to keep in mind…. While Bollinger bands are usually indicative of a short term top or bottom, they can also indicate price compression reduced volatility. Typically when volatility is reducing and a stock is consolidating you will see the Bollinger bands start to pinch in. If the consolidation is coming after an uptrend, the Bollinger bands will slope up sharply.
When Bollinger bands become pinched in very tight, it can indicate that price is coiled and the stock is about to explode, either higher or lower. When combined with the rest of your swing trading strategy this is another important aspect of Bollinger Band trading tactics. This candlestick also has a long lower shadow that reflects the upward pressure.
Then the market becomes slow for several candlesticks, BUT candlestick 3 assures you that the range is broken. Then some red candlesticks form, but you should know that after a range breakout, the very first reversal signal is not indeed a reversal signal.
It is a continuation signal. I just brought it here as an example of a tight ranging market and its breakout. Line chart is plotted based on the close signal. Close price is very important specially when you want to interpret the Bollinger Bands signals and predict the market. As you see the support and resistance of the range are shown much better in the line chart blue circles. Numbers 1, 2 and 3 are where the candlesticks 1, 2 and 3 formed on the previous chart.
In the above line chart, the range breakout is confirmed while candlestick 3 was forming because the price line goes up, touches and rides the Bollinger Upper Band.
This means the price has broken above the range, and now we have an uptrend. So we learned that the close price is very important when we work with Bollinger Bands. Like the Fibonacci system , one of the ways of trading using the Bollinger Bands, is finding a range and then waiting for its breakout.
Bollinger Bands are really good in following the trends. Please follow the numbers on the below chart. If I wanted to take a long position I would wait for more confirmation which is the 2 candlestick. I would go long at the close of 2 candlestick.
It is another confirmation for the beginning of an uptrend. Zone 3 is the most important part of the below chart. Conservative traders prefer to take their long positions after the formation of such a confirmation. They go long when the price breaks above the thin red line 4. They place the stop loss below the low of the last candlestick that its shadow is broken down the Bollinger Middle Band. As you see it goes up strongly first red big arrow.
There are some small red candlesticks but they should not be considered as reversal signals. At 5, the price goes down to retest the Bollinger Middle Band. This is the beginning of the second Elliott Wave. It is where some traders wait for the retrace continuation to go long.
When you see the price has been going up strongly for such a long time, you should ignore the first and even the second reversal signal. They are not reversals. They are continuation signals in fact. I mean you have to consider them as continuation signals not reversals. So the price goes down, retests the Bollinger Middle Band, and it even succeeds to break below the middle band, but keeps on going up again.
Fibonacci can be a big help here. As you see at 7 and when it wants to break above the We should now expect it to break above the As you see it could even reach the It is the same as when we have a downtrend. Candlesticks touch and ride the Bollinger Lower Band. Bollinger Bands are great in showing the reversal signals too. Usually a nice reversal signal becomes formed when a candlestick breaks out of the Bollinger Upper or Lower Bands, and then it is followed by another candle which has a different color the confirmation candlestick.
One of the best examples can be seen in the above image at 1. Below, I am showing you the signal once again:. As you see the candlestick 1 which is a bearish candlestick is formed completely out of Bollinger Lower Band, and the next candlestick 2 which is a bullish candlestick has covered the body and upper shadow and also most of the lower shadow of candlestick 1.
These two candlesticks form a signal which is called Bullish Engulfing. It is a strong short reversal signal when it breaks out of Bollinger Upper Band. I strongly recommend you to learn the candlestick signals. Note how both candlesticks broken out of the Bollinger Lower Band and how the second candlestick has covered the first one totally.
Note how both candlesticks have broken above of the Bollinger Upper Band and how the second candlestick has covered the first one.
Also look at the big upper shadow that the second candlestick has formed. False signals always form. Indeed, the form a lot more than the true signal. True signals are easier to catch, because they are stronger and look outstanding.
There are false range breakouts and also false reversal signals. Those who like to trade the reversal signals, will be encountered with more false signals because a trend can be continued for a long time, and it is not easy to say when it will reverse. If you like to avoid being trapped by false reversal signals just ignore the very first two reversal signals when there is a strong trend ongoing.
For example, some traders take a short position when they see the below signal, but as you see this is not a strong signal compared to the signals I showed you above:. The uptrend is really strong, and this signal is the very first reversal signal on such a strong uptrend. What do I mean by strong uptrend? Look at the uptrend slope. It is a sharp slope that is going up strongly.
There is no sign of exhaustion in it yet. Look at the Bollinger Middle Band Slope the first red arrow. So the trend is still strong and has not formed any sign of exhaustion when this relatively true signal was formed. You could take a short position, but you really had to get out when the continuation signal formed around Bollinger Middle Band. Now look at the below chart and follow the numbers. Find out why some signals are false, some are true and some are continuation.
As you see Bollinger Middle Band works very well with the continuation signals when there is an ongoing strong trend. In an uptrend, continuation signals are formed when the candlesticks go down, retest Bollinger Middle Band, and then go up again.
Taking the continuation signals are much safer than the reversals, unless you make sure that the trend is really close to reverse and is already exhausted. This was just an introduction how to use Bollinger Bands in taking the reversal and continuation trade setups on the trending and sideways markets.
You need to practice more to become expert in locating the true signals. Learn more about Bollinger Bands:. I have studied this most effective indicator explanation and got photo copy for ready reference. Indicator has been explained in very clear manner.
I will use this strategy in my trade. Thanks a much for such demonstration. Great man…I have never seen such a great explanation even upon paying tuition fees. U r really Excellent. I am looking forward article from you regarding candlestick reversal signals and false signals….
I am learning from your article and that would be really helpful for all of us basically for me. So, thanks again and please try to help us to get more skilled with the other ways to do better in trading. From the start i was stick with the BB indicator but not use it with details. This could help me better in BB. The break away gap in the last graph at 7 which was tagged relatively true reversal signal is also a confirmation of change in polarity.
This occurred just after the bearish engulfing pattern at 7. My question is does break away gap join in fundamental analysis of a trend in such suitation? Thank you so much. The fact that you explain everything so clearly is amazing.
The fact that you also involve real life examples of stocks and having us do questions helped the info sink in even more! The above article is clear to understand. Mainly, because they are in the Middle Band region and since it is in Middle Band, it could be retesting the Middle Band or breaking away from the Middle Band, how can a novice trader consider continuation and confirmation as a trade setup? I know we can consider the close price to determine the direction.
But, going back on some charts and seeing such signals — it proves to be quite a tricky setup with chance. We have talked about the candlesticks that need confirmation in different articles:. Also this article talks about the continuation trade setups in more details: Hey Chris my confidence in trading confidently increases by every article of yours I read even without paying a dime More grease to your elbow and more assets in your arsenal,you did quite well and God will bless all your pips Thanks.
I am new trader and start trading right now. Explain in a very simple and more efective ways. Chris Pottorff for a such a nice article which specially very helpful for New trader….
Which one should I choose to have exactly the Bollinger Bands you are using to trade? What time frame is suitable? Here is the answer about time frame: Are you new to Rezze? Then please read this article first: You know I have got it, when I ask less questions.
But at the moment, like a sponge I am absorbing your materials. And they are all good and consistent. Referring to point 2 above on reversals. Does it matter to the strength of the setup if in the piercing line above, the upper shadow is also very long.
What if both candles with beautiful size and long shadows were out of the BB range, and none made back or crossing into the BB range? What do you make out of the strength of such a setup? Do you wait for another confirmation? Yes, it is a negative point for a long trade setup: What if the candlestick preceeding 1 was also outside the BB range?
Say it went bearish body and shadows under the lower BB, and candlestick 1went up bullish strongly but still outside the lower BB? Would it have been a good setup? Is this a strong trade setup? What would you score it? Yes, it a score trade setup that we took it and we use it to compare the other short trade setups with: I suggest you to read all the articles listed on the below post carefully and patiently.
What I understand from the number of questions you ask while you have not read the articles carefully, is that you are excited and in a hurry. This is not good for a trader: Thank you for your wisdom. I really appreciate your helpful attitude and being extremely patient with me. You are right that I am excited and in a hurry to understand it. I too have lost a lot of money, and we are not talking about just tens of thousands.
In fact, I had decided to not trade again but to just invest using value investing. But I still got burnt on good companies because of there are just too many variables, e. Hence, I find currencies are much purer. And the market size is so large that it is not easily manipulated. Having said that, I have actually read so many of your articles.
Including the one you mentioned above. But because I read so much, whilst I may remember the pattern, I may not remember the currency pair and the dates.
Chris, your article https: I am actually talking about a bullish entry on Are you talking about the same thing? You did go long on This is question was to illustrate whether a breakout where the candles are still outside the range and not making it back into the BB range can still be considered as a strong trade?
Now, you are right about not too hurry it up, and read up the articles patiently. A very important advise. I promise to remind myself on that. I am trying to do backtesting now, and see what the outcome is.
We also talked about that too strong weekend gap that GBP cross currency pairs opened with: It was a strong setup on the weekly, but on the daily it formed on a too bearish market when the So we avoided it on the daily. Dear Chris When we look for nearest resistant or support lines some of them turns from downside to upside the other opposite. So if we think about going long or short which one we should consider?
Both or opposite turning point? I hope explanation of my question is clear enough. English not my first language Thank you Dogan. When there is a downtrend or range, a descending resistance is a better choice to go long. And visa versa for going short. Thank you for time to answer me. I hope this is not a silly question. When I want to go long as using line chart over the price level there are some turning points. I know old support and resistance turning to to each other.
Do I need to consider all this turning points as resistance or just only clockwise? Your candlestick explaination is simply superb, i have learned and practised in demo account and was successful. How can I change that and see exactely what I see in your charts? Hello Chris, thanks for sharing your knowledge and experience. Just a quick question about engulfing strategy, does it also work on weekly and monthly timeframes?
With my shortage of experience I think I will probably take 4 false signal because of many positive points. Too strong engulfing candle which is break BUB and engulf too many candles. Abandoned baby candle above BUB before engulfing candle 3. There are signs of exhaustion and bears pressure. Consolidation for almost three weeks after 3 false signal, which I will consider like hesitation.
Based on that market condition I will probably take this trade signal with riskier SL which is good and after being stopped out, continuation candle while gave me new signal to enter on trade. It is formed by a too long candlestick with a considerable lower shadow.
Indeed, it is not a false signal. It is a bad signal. Thank you so much Chris you are indeed a angel. I do have a question though. Please how can one use this strategies to trade shorter time frames like 5, 10, 15, 30 minutes also can this be applied to binary options? You can use the same way on any time frame or price chart. Just keep in mind that shorter time frames are riskier to trade. Do you mean that, if the closing price of a candle is above an upper band, there is no band breakout?
But the closing price of the third candle of the first example, it closed above the upper band, so how can it be a BB breakout? Or were you doing simple technical analysis? Thank you very much. Oh sorry, english is not my first language. But, about the middle band, you said we can use it to trade continuation signals, but you also said that is risky or riskier than your normal trading. So, how can I trade continuation signals, if there are no strong reversal signals? Thanks a lot for your time and help.
Bollinger Bands can be a crucial tool to use on a stock that may be trading for long periods in a trend, with some occasional bouts of volatility. Technical analysts will use the moving average to filter the stock’s price action to spot the trends better and to gain critical information on how the market is . One such indicator was Bollinger Bands, as stocks that fall below the lower band tend to outperform. We asked Senior Trading Analyst Bryan Sapp which names on the list looked most attractive from a sentiment and price perspective, and he identified Capital One Financial Corp. (NYSE:COF), Fifth Third Bancorp (NASDAQ:FITB), Hologic, Inc. (NASDAQ:HOLX), and UnitedHealth Group Inc (NYSE:UNH). How to Use Bollinger Bands for Better Stock Picks Bollinger Bands are an excellent tool for helping develop Spatial Pattern Recognition Skills, those visual skills which all expert technical analysts have. For many technical traders, trying to recognize sideways price action early on and how price will behave during that sideways pattern is the number-one analysis skill they struggle to learn.