Bollinger Bands® is a versatile indicator with awesome features. These Bollinger bands trading strategies for every trader are unbeatable.
No single strategy works in the markets for every script or bond all the time. You need to adopt different strategies at different time even for the same stock. It can even differ from trader to trader.
According to a post published in Investopedia, there are two types of approaches to trade chart patterns: Fade Trading and Reactive Trading.
Those who prefer to anticipate specific pattern formations are known as “Fade traders” or “Proactive traders”. They used to trade against the prevailing trend i.e. buying the weakness & selling in the strength. They possess high risk tolerance for share trading.
However, those who prefer to wait for the confirmation of pattern are known as “Reactive traders”. They used to trade as per the prevailing trend i.e. buying the strength & selling in the weakness. They possess low risk tolerance for share trading. But, they have to pay worse prices & suffer huge losses if the expected pattern fails to form.
Generally, you need to utilize Bollinger bands along with additional indicators to get more reliable & clearer picture of the expected move. Once you interpreted the right signal at the right time, you are likely to find ideal entry/exit points for trading. Here are 10 best trading strategies of using Bollinger bands in technical analysis:
[You can also watch an exciting video on this post from GetUpWise channel on YouTube.]
(1) Trading Double Bottom “W” In Bollinger Bands
It is one of the most common Bollinger bands trading strategies for every trader. A double bottom is a charting pattern formed at the bottom or lower band of Bollinger band. This chart pattern will closely resemble the shape of a “W”.
It is characterized by a fall in price of a stock or index to form first bottom that have strong volume & a sharp price pullback that closes outside lower Bollinger band. This initial rise is referred as “automatic rally” & its high will serve as first level of resistance in the base building process.
After this initial rally, the price attempts to retest the most recent lows to test the strength of buying pressure that came in at that bottom. Several traders will look for this second bottom to be inside the lower band. This indicates that selling pressure in the stock has diminished. Now, there is a shift from sellers to buyers.
Additionally, you will also observe a dramatically drop in the trading volume. It signals a reversal of the ongoing downtrend into an uptrend.
Fade traders will prefer to buy at the first bottom that is formed outside of the lower band. They will book profit after the price pullback to reasonable levels.
On the other hand, reactive traders will prefer to buy at the second bottom formed inside of the lower band. This phase confirms the formation of double bottom chart pattern. These reactive traders will book profit near the first level of resistance or at a target price obtained by adding height of W-bottom to breakout price.
- Bollinger Band double bottom chart: Pinterest & Traderhq