Advanced Bollinger bands

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Day Trading with Bollinger Bands 

 

Finding intraday trends and channeling is often harder than finding longer term trends.  Most of the time, short term trends disappear before they can be utilized, and even worse, are often hard to see in the first place.  

 

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Adding Bollinger Bands to your everyday line-up of technical indicators will help you stay on top of the market and follow the trends and patterns that occur in everyday trading.

 

Bollinger Band utility for day trading  

 

Bollinger Bands provide the most utility on the shorter timeframes.  Most indicators work better and smoother on longer timeframes because the irrationality of the market has time to work itself out over a multitude of bars. 

 

On the other hand, Bollinger Bands are fine tuned for the express purpose of profiting on trends and their reversals and keeping on top of the market volatility. 

 

For example, in one day, a $.10 change in the price of a $100 stock is absolutely minimal; however, on the tick charts, it can appear as a much greater change, considering the most nominal tick value of $.01 per share.  It is far more likely that a $.10 change will occur on a 1 minute chart than a $1 change on a 10 minute chart.

 

Gaps and flats 

 

The typical day trader setup of a one minute, or even a tick chart, often creates a chart filled with gaps and bars that seemingly never move. 

 

These empty charts are extremely hard to trade, as their movements are quick and sharp and not very well defined against the background. 

 

Though the trends may be hard to see to the naked eye, the Bollinger Band is still just as effective in finding the mathematically calculated trading range.  

 

Bollinger band gaps and flats

 


 
Thin chart becomes thick 

 

As seen above, the chart appears to be very thin and full of up and down bars that seemingly never change vertical position over a long period of time. 

 

No straight line can be drawn to connect the tops or bottoms, yet the Bollinger Band does a wonderful job of connecting the tops with the bottoms and projecting how the market will behave inside the trendline. 

 

Touches to the bottom of the band are met with short rises while top touches send the S&P back down.  Double touches to either Band are infinitely more productive and stronger, showing confirmation of the double tops and bottoms.

 

Narrowing is a great predictor of moves 

 

The Bollinger Band contractions show a weakening trend and often come right before a big breakout.  In the case above, this was entirely true; the big swings in price all came after considerable contractions in the Bollinger width when volatility lightened and a breakout grew in possibility.

 

Bollinger Bands and stochastics 

 

Stochastics and Bollinger Bands create a preferred combination of technical indicators to find overbought and oversold territory. 

 

When both the Bollinger Bands and Stochastic indicator curve up at the bottom near a low, it is often a buy indication, while the opposite is true for sell signals. 

 

Momentum indicators mixed with Bollinger Bands are very common because of the similarities in the indicators.  For day trading, a similar mix of momentum and Bollinger Band proves to be very profitable.