How Bollinger Bands can help in trading
How Bollinger Bands can help in trading
As a trader you need to learn the oscillator chart indicators like the RSI (Relative Strength), the CCI (Commodity Channel Index) and Stochastics. The oscillator anyone chooses to use is really entirely up to personal taste, but you should never recommend using more than one at a time purely for the reason that in essence all three do exactly the same job.
While the RSI is formulated based on relative strength of price, the Stochastics is instead based on systematic higher and lower price closings. The CCI computes its results from the change in price in comparison to previous price fluctuations. So, while each individual indicator has a slight difference in its calculation method, they all have the common thread of showing a trader signs of when a market is potentially "overbought" or "oversold," leading to some key potential opportunities to join the current trend.
Traders need to know a uptrend is a series of higher lows usually accompanied by higher highs in price. A downtrend, in contrast, is a series of lower highs accompanied by lower lows. As traders, you are taught to trade in the direction of the trend for your selected trading time the trend ends, it would be wise to exit from your trade before losses grow or profits are given back. By using the previously mentioned definitions and fully understanding trend, we can construct a strategy to place effective stops.
When price reaches a chart supply level, it pierces the upper Bollinger Band, it might be showing a downtrend, and there is a significant profit margin below, sell short at the supply level with a buy stop just above the supply level.
Profit targets are first the midline and then the opposing demand level. The opposite rules are true for long (buying) opportunities.Bollinger Bands were invented by the market technician John Bollinger in the 1980's. He took the idea of the moving average, he then set a moving average on the trading chart as a "center line" that represented the average price of the stock being charted. He then calculated and applied two separate lines above and below the center moving average. The lines were formulated as a measure of volatility by showing the trader these Bollinger Bands as +2 and -2 standard deviations from the center line.
Traders can use a momentum indicator such as ADX or MACD. Even multiple moving averages can give a trader looking to determine trend strength. These indicators can help you place a less risky trade.
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