Bollinger bands explained and the Bollinger bands charts
Bollinger bands charts are a helpful way to determine when the market price of a share will be reversed and it also helps in determining a good trading strategy using the breakout of the price on the either side.The Bollinger bands strategy has been primarily used in the forex trading but it can be used in the context of the stock market.
Now you may ask that why use this trading strategy and what help it will give to you as a stock market beginner. If you need to know more about charts then you can read my guide on reading stock charts for dummies
Bollinger bands basics
The two bands represent the upper and the lower band in between which the stock market will trade. Once the market price will start moving towards one band then you can assume that it will go till the time it hits the band and then either the trend will be reversed or the breakout will happen. Now if the breakout happens then that will mean that the two bands will be more part than earlier. The more closer the bands are and it will suggest that the stock price is less volatile.
They have a central line which represents the moving average and the upper and the lower bands represent the standard deviation multiplied by a factor.
Bollinger Bands interpretation
The simple interpretation of the Bollinger Bands is that they will never tell you whether the price is high or low as every thing is relative. The upper band is the standard deviation multiplied with a factor above the moving average and the lower band is the standard deviation multiplied by the same factor in the other side of the moving average.
All said the Bollinger bands are an indication of the volatility of the market.
How to use Bollinger bands as a trading stragey.
When the price reaches the upper band then sell the stock and when the stock movement reaches the lower band then buy. Most analysts though do not even buy or sell and guess the overbought and the oversold position through this trend. They rather use this tool to determine the larger trend in the stock movement.
A good technical analysis is presented here for candlestick analysis
Related posts:
- MACD technical analysis
- How to Read Stock Market Charts as a Stock Market Beginner
- Candlestick Stock Analysis – Patterns
- Technical analysis of stocks
- Reading stock charts for dummies
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