There are a lot of rules to remember when trading with Bollinger bands. When reading about how to use Bollinger bands it may seem rather difficult to implement, but truth be told, Bollinger bands are not only easy to use but insanely accurate at short term price movement.
20 periods and 2 standard deviations are default values only. - These periods of 20 and 2 are kind of like the “average” values one might consider. If you plan on using Bollinger bands and using multiple time frames then plan on adjusting your period value. The standard deviation of 2 is the same in any time frame but the period will need to be adjusted for many reasons.
Bollinger bands need other confirmation. - I say BS, Bollinger bands are about the only tool / indicator I would ever consider using exclusively. I don’t use them exclusivey, only because I don’t have to. Truth be told Bollinger bands are just about the only indicator i would ever consider using exclusively. With a good understanding of Bollinger bands you don’t need anything else.
Trading with the trend. - When trading with Bollinger bands you will increase your success ratio by taking trades that favor the trend. If price is headed up then take trades where you are bullish. Let the corrections down be your waiting period. Using standard support and resistance lines and pivots in conjunction with Bollinger bands will help you identify excellent entry zones.
Following the bands. - Yes, rather than revert to the mean price will often gravitate to either band and head in that direction aggressively. This is one of the huge profit potential zones Bollinger bands offers. For clues on whether price will reverse or follow the bands with the band reaction as price approaches.
Bollinger Bands work with more traditional technical analysis - Bollinger Bands are great at confirming traditional market patterns. Patterns such as the head and shoulders or double bottoms and tops are easily confirmed by touches to the Bollinger Bands. A double top at the upper range of a Bollinger Band is often a strong sell signal, made stronger by the Bollinger confirmation; this is called confluence and an excellent confirmation tool.
Bollinger Bands set great price targets - Many investors use the 50, 100, and 200 period moving averages to calculate price targets. Bollinger Bands can be used in just the same way. When price bounces off the top range and crosses the center line, the next move is likely to the lower line. Consider the bands for profit targets.
Bollinger bands has just 2 values to set. The first is the N value, the second, K value is the standard deviation. 2 standard deviations is pretty common and works rather well in all timeframes. I like to set-up a 2.0, 2.5, and 3.0 standard deviation one on top of the other. As far as the N value 10 is the absolute minimum. This is the look-back period and anything less than 10 is just noise.
Bollinger Bands do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.
Bollinger bands do not predict the future. In fact Bollinger bands are providing you with information only after price and not before. That said, the secret in trading Bollinger bands is your ability to understand and respond to Bollinger band signals as price approaches the bands. Watch closely how Bollinger bands responds to approaching price for clues on how to make the best trades.
Bollinger band width. The width of the bands is important. I use 3 set of bands personally. 2.0, 2.5 and 3.0 standard deviations on every time frame I trade. this allows me to see the extreme nature of the move or potential reversal. Using high probability candlestick patterns with band width is an excellent tool for identifying entry.
