In this video, taking a look at Bollinger bands, no Bollinger bands, if you remember your old math
classes, there were the bell curve, the standard deviation, and 95 percent of action was within two
standard deviations of the norm.
So the idea is that price can get a little ahead of itself, a little lower, overbought, oversold.
That's essentially what you're using.
The Bollinger Band Indicator is a moving average in the middle of the 20 Esmay simple moving average
is the default for most platforms.
So you'll have the moving average like you learned about in the last video, and then you'll have bands
that form around it that show plus two standard deviations, miners to standard deviations.
And keep in mind that this is the.
Normal price, the trending average price.
So let's click on Indicator's Click on Bollinger Bands.
And you can see that we have a middle line here.
This is your 20 s.m 20 based upon the clothes and then to two standard deviation.
So these lines, this is two standard deviation, Tuya, two standard deviations lower.
So when you look at a Bollinger band, you should think of it as a couple of indicators in one, so
you have the moving average, you have the standard deviation.
You also have the width of the standard deviations.
So what I mean by that is in a more volatile market, they'll spread out because your average price
swing and your average price for the day in this case is much higher.
In a very kind of quiet range bound market that isn't doing much, you can see how.
Then it gets and that shows you that the market just isn't very volatile at all.
So you want to pay attention to that?
Now, with all things technical analysis related, the first thing you want to notice is the trend.
So when you have a slight lower or upper moving moving average, it's not a lot to do with the Bollinger
band.
When you get a compression, then that tells you that you could get an explosive move rather soon.
So let's go ahead and take a look at a couple runs here, we have broken higher.
We've hit two standard deviations above the norm that is grinding higher with it.
And you can see that we come back and we find support there.
So the idea is that you can use the moving average air support and you can see that if you just simply
followed right along, you could have made quite a bit of money.
But there does come this point here.
So, for example.
This candlestick in this candlestick and this candlestick, I'll catch my attention, and the reason
is that they break out of the.
Standard deviation ban and the one on the.
Far left over here and this one are particularly interesting, and that tells me that perhaps.
It's time to exit a long position, but this one tells me that we are starting to pull back.
It's a shooting star, but when you close outside of two standard deviations, you are getting a bit
stretched.
So if you're long, this could be a reason to exit.
Now, some people will short and try to aim for the other side.
That's a bit riskier because you're not going with the overall trend.
Another thing that you will sometimes see is some traders will actually look for a compression like
this, and then once we explode to the upside, you know, if you think about it, it makes sense that
the first couple of candles do close outside of the standard deviation because we haven't been doing
much lately.
So what they'll do then is they'll just dynamically move their stop loss right along with the moving
average to try to catch as much as the move as possible, because clearly you had a breakout here just
based upon support, resistance and then a close on side of it.
So you could have gotten along here and gotten out here for a nice multi week gain, because this is
a daily chart that I'm looking at.
The moving average starts to roll over with closed below.
You could look to shore next time we touch it and you can see that it just kind of rinses and repeats
just time and time again, an explosive move to the upside forward, a shooting star, but we broke
above the shooting star, which is a very bullish sign.
And you could see that that was probably a break, even trade, if you did the stop loss at the moving
average thing.
But you also had a shooting star closed just outside of it, which, as I mentioned earlier, is a sign
that perhaps we're getting ready to pull back.
So you could have gotten in here, got out here or here, just kind of depending on how you played that.
Bollinger bands for myself, I found them to be extraordinarily useful for determining when a stock
may move violently because of the compression.
That's my favorite use for him.
But there are a multitude of ways to play this.
So just by all means, do stick with the trend, though.
This is slightly bearish trend.
So you could make a little bit of money selling.
But then again, when you look at the longer term attitude of the market, you would have expected support
there.
So it's a tool.
It's not.
You know, unfortunately, some people use Bollinger bands as a complete trading system.
And I think that's somewhat dangerous.
You never really want to use just one thing.
Price action, support, resistance are the bedrock.
And then you can add this on top of it.
So for an example.
Let's go ahead and draw a horizontal line here at this previous resistance, so you would have known
that somewhere around 32 ish dollars there was resistance and you would have also known that there was
support here.
So it makes sense that there's going to be a lot of buying pressure in this area.
And that's exactly what we saw.
So where's your signal?
Well, your signal could be every time you break above this moving average, but quite frankly.
I think the most interesting candlestick is the shooting star that formed here at a place where you
would expect to see selling and then it gets busted through the next day.
If you don't like that, a return to the moving average, you would have had to wait a couple of weeks.
But you got a nice opportunity there.
At that point in time, you had multiple trades that would have worked out.
Bollinger bands are good, but you have to use them as a tool, not an entire system.