Wednesday, May 23, 2012

A Powerful Day Trading Tool - Bollinger Bands

Finding intraday trends and channeling is frequently harder than finding longer term trends. Very often these shorter term trends will come and go so suddenly that if you're not ready when they are you're left in the dust. Adding Bollinger Bands to your everyday line-up of technical indicators will help you stay on top of the market and monitor the trends and patterns that occur in everyday trading.

Bollinger bands in a day traders hands

On a shorter term time frame Bollinger bands outshine all indicators. A lot of indicators work better on longer time frames because of the fact that there is more data for smoothing. Bollinger bands conversely are a hand in glove fit for day traders wanting to identify trends quickly.

For instance, in one day, a $ .10 change in the price of a 0 stock is absolutely minimal; looking at a tick chart this will appear a much greater move and will be extremely evident with Bollinger bands. It is far more likely that a $ .10 change will occur on a 1 minute chart than a change on a 10 minute chart.

How to pinpoint gaps and flats

In today's day trading environment traders will repeatedly use a tick chart up to a 1 minute chart resulting in gaps and non moving bars because of low volume. A chart like this is not easy to unravel because of the lack of fluid movement. With Bollinger bands finding these trends is much easier because Bollinger bands measures volatility and price has to revert to the mean from a volatility standpoint.

Narrowing is a great predictor of moves

The Bollinger Band contractions show a deteriorating trend and often come right before a big breakout. Take a look at 100 stocks and it is apparent that a tightening of the bands normally always results in expansion and a extraordinary price thrust.

How to use Bollinger bands and stochastics

When you use stochastics in conjunction with Bollinger bands you get a very strong combination. If you are using Bollinger bands with stochastics you can pinpoint a new bull trend by looking for stochastics at the bottom and curving up, while price is closing outside a lower band. If you want to isolate and take full advantage of a new trend try incorporating Bollinger bands with another robust indicator. If you are going to day trade this mix of a momentum indicator and Bollinger bands will prove to be priceless.

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