(8) Don’t Make New Positions Quickly After Gap Up Or Gap Down Openings
It is one of the most common guidelines or tips for day trading with Bollinger bands. Gap up or gap down openings do occur in financial instruments. If it occurs within the Bollinger Bands® then it’s not of much importance.
However, if gap up or gap down opening occurs outside of the outermost band then it surely drives attention of traders. Traders should never take any decision in a hurry.
Although, you can book partial or complete profits at such levels but making a position against the prevailing trend can results in huge losses if the trend continues further. You should wait until confirmation.
For example, if stock gaps up and then closes near its low & is still completely outside of Bollinger bands. This will be a good indication of the possible correction in the near-term.
Traders can make a short position on next day by keeping three possible targets: (a) upper band (first target) (b) middle band (second target) (c) lower band (third target).
Similarly, if stock gaps down and then closes near its high & is still completely outside of Bollinger bands. This will be a good indication of the possible pullback in the near-term.
Traders can make a buy position on next day by keeping three possible targets: (a) lower band (first target) (b) middle band (second target) (c) upper band (third target).
Thus, closing price of the financial instruments gains importance for making position in such a scenario.
[Read Also: 10 Reasons To Buy Stock Trading In Very Tight Range]
(9) Bollinger Band Squeeze Is Followed By A Big Increase In Volatility
It is one of the most exciting tips for day trading with Bollinger bands. Bollinger band squeeze is a chart pattern that occurs when volatility falls to lower levels. It is usually characterized with tightening of Bollinger Bands.
It is the time when day traders need to stay away from trading. It is due to the fact that they can’t generate profits within a day due to lack of volatility.
But, you should keenly observe this unique pattern as it is likely to foreshadow a big move on either side. Therefore, you can generate huge profits quickly if successful in riding the move in the right direction.
This squeeze pattern is triggered when volatility reaches a six-month low. It can be identified when the bandwidth is at six-month minimum distance apart. Additionally, you can utilize some more technical indicators to track the most probable direction of breakout.
Some of the additional indicators include include Relative Strength Index (RSI), Accumulation/Distribution Index, MACD, Volume Oscillators, Volume Bars, Balance of Power (BOP), & many more.
These volume & quantity based indicators can better reveal what large institutions or big investors are doing? Buying or selling! Thus, you need to act smartly to track their moves.
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