Bollinger Bands and Keltner Channels Explained. // trading strategies basics for beginners settings david moadel
eleven
welcome to looking at the markets with David Modell today I just wanted to give
you a brief introduction to Bollinger Bands & Keltner channels which are
rather similar but there are differences and I just wanted to point out the
similarities and differences in how you can use both of them so right now I'm
going to go to trading view dot-com I like stockcharts.com I like bar charts
comm and another one of my favorites is trading view dot-com these are all free
to use right now so why not use them and if you have your own trading platform on
your broker you can certainly use that as well you just have to make sure you
find something that has Keltner channels Bollinger Bands and all of your favorite
indicators alright so I've got an apple daily candlestick chart up here and I'll
just show you the candlesticks here they are this is about eight or nine months
worth of price action and these are our daily candlesticks meaning that each
candlestick represents one day of price action alright so first we'll start with
the Bollinger Bands which are the more popular one between Bollinger Bands &
Keltner channels I would say Bollinger Bands are more popular and one of the
reasons they're popular is because Bollinger Bands have the ability to
squeeze and then expand or squeeze and release and so let's take a look
Bollinger Bands have a midline okay and that is basically just the 20-day simple
moving average the midline and then you've got the upper band in the lower
band the upper band is one standard I'm sorry two two standard deviations above
the midline and the lower band is two standard deviations below the midline
and that's why you've got the 20 and the two and the close meaning they're using
the closing prices to calculate all these things all right so it's pretty
simple in concept what I do like about the Bollinger Bands is that you can use
them as a buy and sell signal if you want to some people will buy a stock
when the price closes below the band the lower band and
then other people will not buy until it not only closes below the ball at the
bottom band but they'll wait until it then goes and closes above the lower
band that's another way to do it what's good about that method wait waiting
until it closes above the lower band is that now you've got a little bit of
confirmation that at least it's not gonna at least it's not in a downtrend
anymore if you buy it right after it closes below the bottom band then the
problem with that is you might be catching a falling knife you're buying
it while it's falling sometimes when it's falling fast whereas if you wait
until it closes below and then closes above the bottom Bollinger Band then at
least you've seen a change in direction it could be a head fake it could keep
going down it could create more lower highs and lower lows yes of course
there's no perfect indicator and there are no guarantees in trading or in the
stock market but at least you've got a temporary change in direction and so in
this case if you waited until the candlesticks closed clearly closed below
the bottom band and then closed above the bottom band and then didn't sell it
until it closed above the upper band you would have enjoyed some profits all
right so that's one way to trade it and then some people consider if it closes
above the upper band and then closes below they can they could consider that
a time to sell or even a time to short although short selling is a more
dangerous game than just going long so be careful if you're going to use the
upper band as a short shorting signal all right it may be safer just to use it
as a signal to sell if you already bought the stock and this works not only
for stocks but for commodities currencies crypto currencies and so on
alright so those are Bollinger Bands and I want to talk about the Bollinger Bands
squeeze when the upper and lower band get really close together oftentimes
that indicates that a big move a big breakout is going to happen it could be
a break up or a break all right break out or break down you
know you don't necessarily know which way but you know that if it squeezes
like that a lot of people would say that a big move is about to happen and it
happened here all right you had a squeeze and then then a release okay
because it's very tense here when the upper and lower Bollinger Bands are very
close together that means that it's probably been going sideways for a while
and so the tension is building building and then release of the tension finally
it breaks one way or the other in this case it broke down so some people if
you're an options trading some people will actually consider buying a straddle
or strangle when there is a squeeze there in the Bollinger Bands because
you're expecting a big move and you might not know which half which way it's
going to happen all right another example you've got something of
a squeeze here not as much though I don't see any other huge squeezes here
this is this is the best example of a squeeze right here
actually there's here's another one alright there's there's a yeah Bollinger
Bands squeeze it stays squeezed for a long time and then finally boom the
breakout the release and then the Bollinger Bands expand there alright so
let's compare that to these are Bollinger Bands let's compare these two
Keltner channels which are similar but different
notice that Keltner channels don't really have squeezes and releases not in
the same way that Bollinger Bands do they really squeeze and really release
okay so for options traders Bollinger Bands may be better for that sort of
thing the squeeze and release play now if you want something that's a little
steadier maybe you're not into the you know the really narrow channels and
really wide channels maybe you want channels that pretty much are steady as
far as the width okay then Keltner channels would be
better for you in that case and that could be an advantage you know because
with the Bollinger Bands if you're waiting for for it let's say the
Bollinger Bands are really wide okay then if you're waiting you're waiting
around for a candle to break above or below you might be waiting for a long
time okay because the can be really wide you don't get as many
opportunities when you get these wide bands it's very difficult to get a break
clearly above or break clearly below whereas with the Keltner channels since
they're not as wide you might get more opportunities to trade if you're waiting
for a close below or close above all right now some people actually put both
they'll put both up the Keltner channels and the Bollinger Bands and by the way
I've got the Keltner channels also on twenty and two just like the Bollinger
Bands twenty and two alright so I've got both up here and it may be confusing
looking alright but it is interesting you can actually put both up there and
you could have a strategy where you know what I'm gonna wait until a candlestick
closes below both of them and you because sometimes the Keltner channels
are further out and sometimes the Bollinger Bands are further out alright
and so if it could be a very conservative strategy where you have
you're gonna wait until it closes below both of them and then you get some real
confirmation there alright or you can wait until it closes below and then
above just like with the Bollinger Bands okay and then to sell you don't sell
until it closes till it breaks clearly above both of them and you don't know
which one's going to close above at any on any given day because again sometimes
the the Bollinger Bands are further out like here sometimes the Keltner channels
are further out like here it is interesting that sometimes you get the
Bollinger Bands inside of the Keltner channels like here you got the Bollinger
Bands here and the Calvert Keltner channels further out further you know
the the top band is further up in the bottom band is further down that that's
a real squeeze I mean look how tight that is when the Bollinger Bands are
actually tighter squeezed than the Keltner channels that's a real squeeze
and then you can see that squeeze is likely to release we may not know which
direction but we saw a big move up after this
pretty tight squeeze here to say the least and so if the Bollinger Bands go
inside of the Keltner channels that could be four options players a real
opportunity all right so that's my quick primer have
my quick introduction but wait what the calendar channel is it's the same ideas
you got the midline and he got the upper band and lower band it's very similar
you just choose which one you like better whether you know if you want to
go on the wild side okay if you don't mind something that has you know it gets
really narrow and really wide sometimes you can go with you look at why this is
getting here it's hard to trade sometimes when it's really wide alright
and it can be confusing if you want something that's a little more
conservative just easier to handle notice that it can get wide but not as
wide it's it's more steady with the Keltner channels and sometimes people
even put both up there just for confirmation alright I hope this was
helpful to you if you want more help with indicators
trading investing you really need to have a trading or investing plan if you
don't then you're just setting yourself up for failure really so you can contact
me anytime by email my name is David Modell and my email address is David
Modell M la de l at gmail.com thanks a lot
and please give this video a thumbs up on YouTube and leave a comment and
subscribe to my youtube channel alright I really appreciate it thanks a lot and
I'll talk to you again soon