Short Term Trading With Bollinger Bands | Bollinger band thinkorswim

SkiptocontentToday'sguestisMarkusHeitkoetter,CEOofRockwellTradingandauthorof“TheCompleteGuidetoDayTrading.” TodayMarkusisgoingtoshowyouhowtouseoneofourfavoriteindicators,BollingerBands,inshorttermtrading.BesuretocommentwithyourthoughtsonBollingerbandsandsometechniquesthatyouuseinshorttermtrading.-----------------------------------------------------------------------------------------------------------------------BollingerBandsareagreatindicatorwithmanyadvantages,butunfortunatelymanytradersdon'tknowhowtousethisamazingindicator.BeforeIshowyouhowIuseit,let'squicklyreviewwhatexactlyBollingerBandsare.BollingerBandsconsistofthreecomponents:AsimplemovingaverageTWOstandarddeviationsofthismovingaverage(knownastheUpperandLowerBollingerBand).IfyoulookatthefollowingimagesyouseetheMovingAveragedisplayedasasolidbluelineandtheUpperandLowerBollingerBandsasdottedbluelines.(InMarketClubthelinesarered.)SowhatarethecharacteristicsofBollingerBands?Dependingonthesettings,BollingerBandsusuallycontain99%oftheclosingprices.Andinsidewaysmarkets,pricestendtowanderfromtheUpperBollingerBandtotheLowerBollingerBand.Withthisbeingthecase,manytradersuseBollingerBandstotradeasimpletrendfadingstrategy:TheySELLwhenpricesmoveoutsidetheUpperBollingerBandandBUYwhenpricesmoveoutsidetheLowerBollingerBand.Thisactuallyworksreasonablywellinasidewaysmarket,butinatrendingmarketyougetburned.Sohowcanyouavoidgettingburned?Byunderstandingthedirectionofthemarket.Iuseindicatorstodeterminethedirectionofthemarket,anddecidewhetherthemarketistrendingornot.AndBollingerBandsareoneofthethreeindicatorsthatIuseforthistask.ForshorttermtradingIprefertouseamovingaverageof12barsandastandarddeviationof2formysettings.InmanychartingsoftwarepackagesthestandardsettingsfortheBollingerBandsare18-21forthemovingaverageand2forthestandarddeviation.Thesesettingsaregreatifyouaretradingondailyorweeklycharts,butJohnBollingerhimselfsuggeststhatwhenDAYTRADINGyoushouldshortenthenumberofbarsusedforthemovingaverage.JohnBollingersuggestsasettingof9-12


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