How To Use Bollinger Bands
Bollinger Bands are one of the most useful trading studies out there, as they can be used in a multitude of ways.
Youíve already seen how we use Bollinger Bands to conduct squeeze trades, but what about using them for
another entry method? On heavily trending commodities and even some stocks (for example steel, oil, gold,
silver, etc.) Bollinger bands can be used as an entry method once a trend is identified. Youíve probably heard
how the best time to enter a heavily trending market is on pullbacks right? This is because the stock will come at
a discounted price, plus since your entry point is on a retracement, you earn bonus points because if your stop loss
if properly set it will get you out of the trade should it turn out that this retracement is actually a trend change.
Entering positions on retracements avoids early stop loss activation, where the stock is still trending upwards but
your stop is hit because it thought that the natural retracement in price was actually a trend change.
Below we see a weekly chart of GLD with Bollinger bands applied as well as 2 trend lines I have provided.
"In The Stock Market Jungle
We Give You A Predator's Edge"
Early on, we would have easily identified the bearish trend on GLD by connecting the peaks and drawing Trend
line 1. But when would be a good time to enter the market and profit from the bearish trend? Some traders like
to use Bollinger Bands to fade market movement, and enter opposite of market direction when price action hits
extreme levels, such as the lower or upper band. This method is nothing but an exercise in futility. Why would
you fight an establish trend? All you are doing is expending great effort to make minimal gains while reducing your
chances of success due to going against the established trend.
Instead of fading upper and lower band price levels, letís look at a much better way to trade GLD using the
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The Intelligent Trader
To learn more about basic and advanced uses of Bollinger Bands
both this trade setup and many more in depth. This book takes
readers from the beginer level all the way up to the professional
technical analyst level step by step with easy to follow lessons