Educational Series: Trading with Bollinger Bands (Part 2)
The Bollinger Reversal is my absolute favorite and most valuable perspective of the Bollinger Bands.
Have you ever
- seen the price move strongly in a direction, but the moment you get into a trade, the price reverses almost immediately?
or
- held on to a profitable trade, hoping to hit a take-profit level, only to see your profits whittle away as the price reverses.
The Bollinger Band can help prevent
1) FOMO leading to Late Entry and
2) Greed leading to Late Exit
Look at the yellow spots on the charts
- The spots indicate when the price had traded outside of the 2std deviation of the Bollinger Band (either the lower or the upper bound).
- When the price trades outside of the Bollinger Band, two things are highly likely to happen :
1) the price reverses back before the current candle loses, leading to possibly the development of a pin bar (which usually signals a strong reversal candlestick pattern).
2) the price closes outside of the Bollinger Band and the subsequent candle is a strong retracement, back toward the Moving Average and possibly a stronger reversal.
The Bollinger Reversal can be applied to ANY timeframe (M1 through to D1)
When the price is outside of the Bollinger Band, you should choose to avoid entering a trade, as the price is likely to reverse. And if you are currently in a trade, and the price has broken out of the Bollinger Band, you might want to consider securing the profit.
However, some more aggressive traders could even choose to trade the short-term reversal.
Remember....
- This is a technical indicator. You shouldn't use technical indicators solely.
- Combine it with other forms of analysis, Price Action, Fundamental Analysis, Sentiment, and Other types of indicators.
The more confluences you can have, the more confidence you will have
Have you ever
- seen the price move strongly in a direction, but the moment you get into a trade, the price reverses almost immediately?
or
- held on to a profitable trade, hoping to hit a take-profit level, only to see your profits whittle away as the price reverses.
The Bollinger Band can help prevent
1) FOMO leading to Late Entry and
2) Greed leading to Late Exit
Look at the yellow spots on the charts
- The spots indicate when the price had traded outside of the 2std deviation of the Bollinger Band (either the lower or the upper bound).
- When the price trades outside of the Bollinger Band, two things are highly likely to happen :
1) the price reverses back before the current candle loses, leading to possibly the development of a pin bar (which usually signals a strong reversal candlestick pattern).
2) the price closes outside of the Bollinger Band and the subsequent candle is a strong retracement, back toward the Moving Average and possibly a stronger reversal.
The Bollinger Reversal can be applied to ANY timeframe (M1 through to D1)
When the price is outside of the Bollinger Band, you should choose to avoid entering a trade, as the price is likely to reverse. And if you are currently in a trade, and the price has broken out of the Bollinger Band, you might want to consider securing the profit.
However, some more aggressive traders could even choose to trade the short-term reversal.
Remember....
- This is a technical indicator. You shouldn't use technical indicators solely.
- Combine it with other forms of analysis, Price Action, Fundamental Analysis, Sentiment, and Other types of indicators.
The more confluences you can have, the more confidence you will have
