Bollinger Band Clues to Price Action

Bollinger bands can help a trader to realize what is going on with price action.  When there is a sharp dramatic move in price and you notice that the Bollinger band doesn’t move. It should act as a warning that the move in price is losing strength. The Bollinger band acts like a wall and many times price will bounce off it.

Click here to see an example.

Inexperienced traders may get seduced because of the seeming fast price action and place an order thinking they will catch a big move only to watch price setback against them.

When price action moves sharply and the bands expand in both directions it is indicative a strong volatility. Price most likely will continue in its aggressive movement. When Bollinger bands continue to expand even when price reverses it may be an opportunity to get in on a move as it is probable that it will continue.

 Click here to see and example.

Warning

Bollinger bands shouldn’t be used on their own to initiate trades. But when used in conjunction with a good price action scheme they can give confirmation to initiate your trade or even clues as when to exit.

Go to your platform and install the Bollinger bands to your chart and go back in history and look for expansion and contractions and notice how the Bollinger bands reacted to the big moves and to the fake outs.

By going back in history you will see a pattern shaping that can be very useful in using bollinge bands to assist in making trading decisions. Look at the candle stick pattern that forms inside near the band and when it reverses. Try to notice as well when the price continues after profit taking is done. These almost random waves at times can make predictable patterns that you can use to your advantage.

Happy Trading