Bollinger Bands are a popular technical volatility indicator. They place upper and lower bounds around the trading ranges of a security's price action. Since the heart of any applied Bollinger Bands is a simple moving average, these indicators make natural candidates for a moving average crossover strategy. Moving average crossover strategies apply two separate moving averages of varying lengths for indications of changing momentum whenever one of the averages crosses over or under the other.
For example, your Bollinger Bands might be centered around a day simple moving average and you could also apply another day simple moving average to the same price chart. Whenever the Bollinger Band moving average line crosses above the long-term average, this could be a signal to enter a long position in anticipation of bullish momentum. When the Bollinger Band moving average line crosses underneath the day line, you can enter a short position.
The Bollinger Bands do not have to form the short-term moving average. You could just as easily apply a day simple moving average and use its movements relative to the Bollinger Bands' day moving average center line to signal your trades. Traders who are concerned about possible lag in their indicators could apply an exponential moving average instead of a simple moving average in conjunction with the Bollinger Bands. Since this is more of a factor with longer-term moving averages, an exponential moving average of 50 days or more is common.
The trading signals are the same regardless of the type or length of moving average that you combine with your Bollinger Bands. Bullish signals occur when the shorter moving average crosses above the longer moving average, and bearish signals are sent by the shorter moving average crossing below the longer moving average.
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 Sean Ross Share. Learn about John Bollinger and his widely followed indicator, Bollinger Bands.
Explore how traders interpret the different Use Bollinger Bands in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility Read about the differences between how Bollinger Bands and moving average envelopes are constructed and what that means for Learn more about Bollinger Bands, a tool based on standard deviations of moving average that can be applied to both high Learn about different strategies using Bollinger Bands, and understand how the Bollinger Band is calculated using standard Discover the logic behind using Bollinger Bands as a measure of price volatility for a security, and how the bands adapt 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. This strategy has become one of the most useful tools for spotlighting extreme short-term price moves. Learn to pounce on the opportunity that arises when other traders run and hide. Learn how Bollinger's "squeeze" can help you determine breakout direction. We'll show you which candles shed light on successful trend trades. The point on a stock chart when a security and an indicator intersect. A crossover involving a security's short-term moving average How much a fixed asset is worth at the end of its lease, or at the end of its useful life.
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