Bollinger Bands Explained, All you need to know Hello everyone, as we all know the market action discounts everything :)
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In today’s video we are going to be talking about the Bollinger bands , How are they constricted and how to use to try to identify trades in different financial markets.
Some people think about the Bollinger bonds as a complicated indicator but after you watch this video you will see how easy it is to use.
Lets start with the theory before we see a real life example :
The Bollinger bands were developed by a man called John Bollinger, so no surprised where the name came from.
So the Bollinger breaks down to a Moving average and some volatility bands around that, What we have first is a moving average and on the top and bottom of that moving average we have our bands and they usually are located 2 standard deviations away from the Moving Average.
The idea here is to describe how prices are dispersed around an average value, so basically, these bands are here to show where the price is going and how it's moving for about 95% of the time.
So how do we use this indicator :
1) The first way people use this indicator is when the market price reaches the edges of the Bands, The upper end for example shows that it's possible that the market is overextended and a drop in price will happen, if the price reached the lower end then the market will be oversold and a bounce in price is due.
2) The second way to use this indicator is called Targets, It simply allows us to set up targets for the trade, if we buy near the lower Band then we could set a target above the Moving average or near the higher Band.
Because these bands are based on price volatility they won't stay at the same place from the MA, That means if the volatility drops then the bands will get tighter (Squeeze) , and if the volatility goes up then the bands will go further away from each other (Width).
People use this method to try to understand what's going on with the current trend, so basically if the bands are really far away then it’s a sign that the trend is currently ending, and if they are really close then we could be seeing an explosive move in the trend
IMPORTANT
I always say that you always need to use different indicators when you analyze any chart, this way you will minimize your risk and have a better understanding on how the market is currently doing.
I hope I’ve made the Bollinger Bands easy for you to understand and please ask if you have any questions .
Hit that like if you found this helpful and check out my other video about the Moving Average, Stochastic oscillator, The Dow Jones Theory, How To Trade Breakouts, The RSI and The MACD, links will be bellow
