Best time frame to use bollinger bands

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• Stocks in focus: Financials, power, realty shares, Maruti, Infosys, Biocon
• Using Bollinger Bands to Gauge Trends
• Using “Bollinger Bands” Indicator in Trading

Bollinger Bands can also be used to determine the direction and the strength of the trend. The reverse would be true during a downtrend , where prices would be in the lower half of the Bollinger Band and the period moving average would act as downward resistance. Bollinger Bands adapt to volatility and thus are useful to options traders, specifically volatility traders. This section describes how traders might use Bollinger Bands to make volatility-based options trades.

Since Bollinger Bands adapt to volatility, Bollinger Bands might give options traders a good idea of when options are relatively expensive high volatility or when options are relatively cheap low volatility. Chart 5 below of Wal-Mart stock illustrates how Bollinger Bands might be used to trade volatility:. When options are relatively cheap, such as in the center of the chart above of Wal-Mart when the Bollinger Bands significantly contracted, buying options, such as a straddle or strangle, could potentially be a good options strategy.

The reasoning is that after sharp moves, prices may stay in a trading range in order to rest. After prices have rested, such as periods when the Bollinger Bands are extremely close together, then prices may begin to move once again.

Therefore, buying options when Bollinger Bands are tight together, might be a smart options strategy. At times when options are relatively expensive, such as in the far right and far left of Chart 5 above of Wal-Mart when the Bollinger Bands were significantly expanded, selling options in the form of a straddle, strangle, or iron condor , might be a good options strategy to use. The logic is that after prices have risen or fallen significantly, such as periods when the Bollinger Bands are extremely far apart, then prices might begin to consolidate and become less volatile.

Hence, selling options when Bollinger Bands are far apart, potentially could be a smart options volatility strategy. Start your research with reviews of these regulated brokers available in , read our reviews to find out what technical analysis tools they provide.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Also see our guide to understanding the basics of reading candlestick charts and option trading strategies. We hate spam - see our privacy policy.

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Stocks in focus: Financials, power, realty shares, Maruti, Infosys, Biocon

Learn more Further Reading. Chart 1 : Bollinger Bands 20 day moving average. Chart 3 : Bollinger Band Breakout past support and resistance.

Chart 4 : Bollinger bands showing strength of trend. Chart 5 : Option volatility with Bollinger Bands.

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Bollinger Bands are good at pinpointing these moments. All indicators are capable of providing false signals. The situation when the price bands come closer together is called the squeeze. Suchlike periods indicate low current volatility and the potential for high volatility in the near future. Traders remain mostly inactive during the squeeze. They should not be used as trading signals as they do not provide any information on future trend strength and direction. Bollinger Bands are good at showing current volatility and sometimes predicting upcoming market fluctuations but are not a universal trading tool.

According to Mr. Bollinger himself, this indicator should be combined with other indicators for maximum predictive potential and effectiveness. Bollinger Bands are an indicator worth learning and using in real-life trading.

Not only it is useful but can also provide timely buy or sell signals, while the majority of market participants are still unaware of the future trend direction. NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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