Trading Bollinger Bands Backwards for Trading Success



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This is a follow up from the last episode where we discussed the fact that OB and OS levels on indicators such as stochastics, RSI, and other bounded indicators are NOT actually OB and OS. In fact they’re the exact opposite!

This is also true of Bollinger Bands. Yet I see traders using them as a type of OB, OS signals, essentially using them as Support and Resistance Levels.

  • BB are not S/R levels.
  • Most purely they measure volatility.
  • Here are 3 ways to trade Bollinger Bands correctly:
    1. Can be used to look for a directional move. If price bars hit the upper BB that’s a bullish signal, not a resistance level.
      • What’s best is when at the same time the LOWER BB line is angling down. In other words, the 2 BBs are moving away from each other.
    2. BB squeezes are good. Volatility Cycles.
    3. BB breakouts are good.
      • But wait for a momentum shift against the move.
      • Scalp trades
      • Work because so many traders got in, more are not willing to come in now because they’re “late to the party.”
  • Filter: But only trade them in the direction of momentum on the next higher time interval.
    1. Ideally I like a 1:3 ratio between the 2 time intervals.
    2. I’ll do a separate episode on how to trade multiple time intervals.

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