Bollinger Bands are used often by traders in their trading. Bollinger Bands is basically a volatility indicator. It comprises of 3 bands. The middle one is the moving average. The default setting is 20 period simple moving average. There is an upper band. That is a 20 period rolling standard deviation plotted 2 times above the moving average. The lower band is a 20 period rolling standard deviation plotted 2 times below the moving average. When the bands open up, it indicated high volatility in the market. When the bands come close together and narrow down, it means low volatility in the market. When the bands come close together it is a signal for a coming breakout in the market. But most get the wrong and make losing trades.
Did you read the post on this AUDUSD sell trade that made 200 pips profit with 20 pips stop loss? My trading strategy revolves around candlestick patterns. I use candlestick patterns a lot in my trading. Candlesticks patterns on H4 allow me to reduce the risk and catch the big moves. You can combine Bollinger Bands with candlestick patterns into a winning trading system. Watch this video that explains how not to trade Bollinger Bands! Watch these videos also that explains how to safely trade Bollinger Bands!
Now I personally down use Bollinger Bands. However there are many professional trader who use BBs a lot in their trading. You will come across a lot of BBs Trading Strategies. BBs are similar to Keltner Channels.
If you think you can buy when price hits the lower band and sell when price hits the upper band. Then you are in for a shock. Things don’t work like that. Price can stay in an extended period of uptrend or downtrend. This means you will find price going above the upper band for an extended period of time or price going below the lower band for an extended period of time. This video tutorial explains the best times to trade with BBs.
As said above, when a trend develops you will find price staying close to the upper or lower band for an extended period of time. This means you can use BBs for trend trading. This video tutorial explains how to use BBs to find the direction of the trend. If you want to become a quantitative trading, then you should take a look at our Neural Networks For Traders Course.
Now the most important thing in trading is risk management. Always make sure you are not risking too much in a single trade. Make sure you go for high Reward to Risk trades. This will ensure that you make more than you lose. You cannot avoid losing in trading. But by keeping Reward to Risk per trade high on average you will never lose more than you make. This will help you a lot in your trading. Keep this in your mind! Risk management is the crux of trading. Avoid it at your own peril.