800.676.4410
Technical Analysis - Bollinger Bands
A popular technical analysis technique is the use of Bollinger Bands. As with other technical analysis strategies, Bollinger Bands rely strictly on a stock's price chart. Traders use Bollinger Bands to indicate optimal times to enter and exit a trade, as well as measuring an asset's implied volatility. BetterTrades has several coaches who focus their technical education around indicators such as Bollinger Bands. Classes in these topics are available through the BetterTrades program all over the country in cities such as Atlanta, Georgia.
Bollinger Bands were first developed as a technique in the 1980's by John Bollinger. The system consists of 3 lines which are used to analyze a stock chart over a specified period of time (20 days is a commonly used time frame). The middle line is defined to be the 20-day simple moving average (this changes to reflect the specific time frame being measured). The upper and lower bands are drawn at two standard deviations above and below the middle line. Standard deviation is a commonly recognized measure of volatility and by using it in the Bollinger Band method, traders get a visual representation of the volatility of a particular asset. In times of low volatility, the bands will be much closer together than in periods of high volatility.
For the most part, a stock's price will fall somewhere in between the high and low bands. How close the price comes to a certain band can give traders a lot of information about when to buy or sell an asset. Many technical traders elect to sell a stock when the price touches the upper band and buy when the price reaches the bottom band. Bollinger Bands can also apply to options trading. When the bands are far apart, signaling a highly volatile market, this acts as an indicator to sell a position. Likewise, traders often try to purchase options contracts when the bands are close together.
Understanding Bollinger Bands can be an excellent supplement to anyone's BetterTrades education. While they can be used alone, Bollinger Bands are also used extensively as a part of other strategies. Traders often watch to see if the movements indicated by the bands support the observations made through their other technical analysis techniques. If several indicators all point to the same conclusions, this can suggest to traders that a particular trend is markedly strong. BetterTrades coach Dale Zamzow teaches the use of Bollinger Bands in conjunction with Fibonacci lines to help students identify a potential move of a specific stock. Bollinger Bands can also work with other technical analysis indicators to identify points of support and resistance. Touching one of the outer bands in either direction is often considered to be a sign that the stock's movement will be turning, thus creating either support or resistance at that point.
Attending an Atlanta workshop to learn about Bollinger Bands may improve anyone's technical analysis skills and lead to better trades.
