A double Bollinger Bands strategy is primarily used as a tool to take advantage of sideways markets. Sideways markets are challenging for traders who tend to do better in trending markets, where traders are simply rewarded for being on the right side of the trend. In these environments, traders are better off buying breakouts or selling breakdowns and holding until the trend is violated. Most trading strategies are optimized for these markets. In contrast, a double Bollinger Bands strategy is ideal for sideways markets in which breakouts and breakdowns are prone to reversal.
In sideways markets, timing is more important and traders need to have more modest profit targets. Short-term traders who are aware of the market environment tend to do well in this environment. These markets can be frustrating for traders who are using strategies designed for trending markets.
Bollinger Bands are a lower and upper bound derived from a simple moving average based on a specific standard deviation. The double Bollinger Bands strategy is constructed by overlaying a Bollinger Band on the chart with a setting at the day moving average with a standard deviation of 1. Another Bollinger Band over the same time period is overlaid with a standard deviation of 2. This basically creates a spread between the bands, creating stop losses and profit targets for the trader.
Traders use the spread between the standard deviations as entry and exit points. A cross above the first standard deviation is a buy signal with a profit target at the second standard deviation. The first standard deviation becomes the stop-loss point.
A cross below the first standard deviation is a short signal with the profit target at the lower band of the standard deviation. Again, a break back above the first standard deviation stops out the trade. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance.
Become a day trader. By Investopedia June 17, — Bollinger Band Spreads The double Bollinger Bands strategy is constructed by overlaying a Bollinger Band on the chart with a setting at the day moving average with a standard deviation of 1. Learn about different strategies using Bollinger Bands, and understand how the Bollinger Band is calculated using standard Learn more about Bollinger Bands, a tool based on standard deviations of moving average that can be applied to both high Use Bollinger Bands in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility Learn about John Bollinger and his widely followed indicator, Bollinger Bands.
Explore how traders interpret the different Understand how standard deviations and Bollinger Bands are used to measure market volatility and how this is helpful in establishing Discover the logic behind using Bollinger Bands as a measure of price volatility for a security, and how the bands adapt This strategy has become one of the most useful tools for spotlighting extreme short-term price moves.
In the s, John Bollinger developed the technique of using a moving average with two trading bands above and below it. Learn how this indicator works, and how you can apply it to your trading. Learn to pounce on the opportunity that arises when other traders run and hide.
This intraday strategy picks tops and bottoms based on a clear recovery following an extreme move. Learn how Bollinger's "squeeze" can help you determine breakout direction. We'll show you which candles shed light on successful trend trades. A measure of the dispersion of a set of data from its mean, calculated A statistical rule stating that for a normal distribution, almost How much a fixed asset is worth at the end of its lease, or at the end of its useful life.
If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded. Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as Get Free Newsletters Newsletters.More...