Finding Trends with Bollinger
The original purpose of the Bollinger Band was
to identify trending in open markets. The Bollinger Band works tremendously well when
fine tuned for the market climate.
The two lines surrounding the simple moving
average converge and diverge as volatility changes to
make a trend around the current price.
First step: Horizontal support and
The first step to find trends would be to
identify horizontal support and resistance
horizontal resistance lines will work just like the
middle simple moving average band to support and resist
the price action.
Finding crucial horizontal support and
resistance lines will help make sense of the seemingly
irrational bounces inside the Bollinger Band
Second Step: Angled
When the trend is already well defined, a trader
should place angled trendlines above and below the trend
As angled trendlines do not work perfectly,
adding them to the trend to supplement the Bollinger
Bands is a good idea. Often angled trendlines
support or resist price action before the price touches
Angled trendlines are not as precise as
horizontal support and resistance, but will help you make
sense of the changes in price in between the Bollinger
Angled trendlines can often interfere with the
suggested trend based upon the Bollinger Band, and
therefore, you should be careful to watch for any sudden
changes in price.
Third Step: Read the
There are many different ways to decipher
what the Bollinger Bands are telling you.
Price swings tend to occur after the bands
tighten due to lower volatility. This is when the market
is most likely to break out of the current
A top forming outside or inside of the band
followed by a bottom inside or outside of the band tends
to mean a reversal of the trend. The two bottoms or tops
must both be made in or outside of the bands.
A bottom or top on one end of the band tends to
trade to the other side of the band within a reasonable
amount of time. This usually begins with
many different bars “sitting” on the outer bands of the
The chart below shows the USDCHF pair rapidly
moving between the top and bottom of the Bollinger Band
lines with a 20,2 setting for N and K values
Using the Bollinger Band for
For application to find trends, the best
recommendation is to follow the third bullet point above,
watching for regular bounces inside the
general trend as plotted on the chart will be reinforced
by the channel created by the trendlines.
The trend created by the Bollinger Band will
finish at the end of the last candle, whereas previously
plotted trends will extend for however long they have
been drawn on the chart.
The horizontal or angled lines will not change
over time when plotted on the straight course, where the
Bollinger Bands will change direction and width as the
Use your plotted trends for a generic view of
future movements and incorporate the Bollinger Bands to
find channels within the trend. Bullet point two, which
depends upon the top formation, will help you find the
correct trend in a channel.