Do Bollinger Bands Work?

Sunday, March 6, 2011

There is a lot of question asking whether the Bollinger bands work at all for a trader. From my experience using it, the answer is YES and therefore in this article, I will be sharing with you how I use the bands to trade. Those traders who have problems with using the bands are usually trading using it alone. In fact, there is no way you can trade with a single indicator. You must always trade with several indicators and then place your trade when most of them are showing a confluence of signs.

The Bollinger bands work best when it is used together with an oscillator like the stochastic of RSI. The upper and lower bands demonstrate the range that the currency is ranging and there are a few ways you can trade using this range.

1) Reversal Trading: When the currency hits one of the bands, you should immediately check the oscillator to see if it is oversold or overbought. If the price hits the upper band and the oscillator is showing overbought, this is a good SELL signal and if the price hits the lower band with the oscillator showing oversold, it is a BUY signal.

2) Breakout Trading: If the Bollinger bands are moving in a narrow range, it is a sign of consolidation and you should be waiting for the sudden movement of the price to enter a trade. This is how you can make use of the bands to trade breakout.

The Bollinger bands is definitely a good indicator to have and you must learn how to make use of it to improve your trading strategies.


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