https://www.bigshotrading.info/blog/bollinger-bands-what-should-you-know-about-this-indicator/ are a versatile indicator and can be used in various ways. Their most unique, often-used feature helps predict upcoming market volatility. Regardless of their standalone prowess, it is best to combine Bollinger bands with complementary technical indicators and tools. Bollinger Bands can also assist in predicting trend reversals. However, traders should remember that Bollinger Bands are based on historical information.

This strategy is based on Bollinger Bands and RSI and try to determine overbought or oversold zones where you can trade. By default, it is considered an overbought zone when price is over BB upper and RSI above 80. This indicator provides buy and sell signals for Bitcoin based on confluence from well-known momentum, volatility, and trend indicators.

What time frame is best for Bollinger bands?

Chart 4 shows Exxon Mobil (XOM) with an M-Top in April-May 2008. The stock moved above the upper band in April, followed by a pullback in May and another push above 90. Even though the stock moved above the upper band on an intraday basis, it did not CLOSE above the upper band.

As the channel formed by the trading bands tightens, the chance that a price movement will occur becomes more imminent. When the price makes a significant move, the trading bands move in opposite directions, away from the moving average. The bigger the price move is, the wider the trading bands’ expansion, forming a broad channel between them. It happens when price action spikes the upper line then recovers down, establishing the first high.

How to Use Momentum Indicators

Many traders believe that https://www.bigshotrading.info/ are an accurate indicator of market volatility. If the bands are wider, it means that a market is more volatile; while narrower bands mean that a market is more stable. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. When the indicator reflects low volatility, traders expect the price to gain momentum in the near future. Although it doesn’t indicate whether the trend will reverse or continue, traders can still get a clue about the price direction. All three Bollinger lines are dynamic, so they widen and narrow.

• This allows you to make informed decisions on when to enter and exit a trade, helping you maximize your profits and minimize your losses.
• Many technical indicators work best in conjunction with other ones.
• As more funds program their algorithmic software to trade Bollinger Bands, the more self-fulfilling they will become, and the more we can trust them as signals for trades.
• M-Tops were also part of Arthur Merrill’s work that identified 16 patterns with a basic M shape.
• If you are unfamiliar, Bollinger Bands Width is a measure of the distance between the top and bottom bands of Bollinger Bands.
• For example, it’s possible to use 50 and 2.1 for longer timeframes and 10 and 1.9 shorter timeframes.

With this strategy, I want to satisfy 3 conditions before I open a position. Fantastic material which is guiding the traders in the right and profitable way! If the bands are sideways i place my take profit a few points below the upper band.