Bollinger Bands Breakout Strategy: Does It Work? -- with David Moadel
hey everybody welcome to looking at the markets with David Modell I want to talk
about Bollinger Bands and breakouts and is that something that you should
possibly trade and is it profitable so before I get started I'm going to put
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for free content like this one alright so Bollinger Bands just a quick review
the mid line the middle line here in brown is the 20-period simple moving
average that's all it is just a 20-period moving average then the upper
Bollinger Band is two standard deviations above that and the lower
Bollinger Band is two standard deviations below the midline okay that's
pretty much all there is to it at least mathematically but here's something else
mathematically that you might want to know I have read from several sources
that mathematically ninety percent of the time the candles will stay within
the upper and lower Bollinger Bands they'll stay in here 80 I'm sorry ninety
percent of the time that's what I've heard from several sources I've read
that in a number of places I cannot confirm or deny that I'm not a
mathematician maybe somebody who really knows a lot about math or can backtest
this I suppose can tell me is is that really true ninety percent of the time
kind of looks that way I mean when you look at the candles and this is a again
a daily candlestick chart of Apple stock but what I'm saying here can apply to
one-minute candles five minute one hour weekly candles whatever it is so yeah
most of the candles closed within the upper and lower Bollinger Bands almost
you know yeah probably 90% of them might be pretty accurate maybe even more than
that all right so most of the time it stays within
there and so when a candle closes above the upper Bollinger Band like this one
okay I mean it's a red candle so it probably closed here but that's still
above it's still an up day you know it's only red because it probably opened here
and then closed here right that would make sense that you know for the day
during the day it went down but it's it's still gapped up so as an update and
anyway it's above the upper Bollinger Band here it closed above right here so
since 90% of the time it closes within the bands supposedly whenever it closes
above that's supposed to be a pretty special event doesn't happen that often
in fact in this whole chart here which is several months of Apple stock daily
candlesticks it almost closes above it here maybe it did but it clearly closed
above it here and so yeah that is kind of special isn't it but momentum traders
would say that's they might say that since if that's special that's a good
time to buy and this is only one example but we can see that that's not always
true in fact the price just collapsed after that in Apple stock that's just
one example I'm not saying they're all like that and if somebody wants to back
test that if you're good at coding if you're a coder then they may be back
tested see what happens whenever a candle closes above the upper band does
it tend to go up or down after that over the next several candles I don't know
but I personally will probably not buy at that point not just because of this
one example but just from my observation and also just the type of trader or
investor that I am I don't like to buy at a high price I like to bite a low
price I'm more of a value or contrary and type of trader or investor than then
a pure momentum type of trader or investor and there are exceptions you
know I do believe the trend is your friend also
but as far as buying it at a high price that that's usually not it's not me it's
not my personality most of the time it's not what I want to do so I generally
will not recommend it there are always exceptions and I've seen videos on
YouTube and I've seen people who you know consider themselves experts I
suppose and they recommend doing that buying the Bollinger Band breakout it's
it's not something I would generally do myself because also think about this if
the candles closed 90% of the time was within the band's within the upper lower
bands yes closing above is kind of special but so
is closing below right is that any less special if you're a contrarian or value
type of investor I think that's pretty special I might want to buy there or if
you want if you don't want to catch a falling knife I mean you can see these
you know four red candles in a row and this this one really gapped down from
here so I can understand understand not wanting to buy here I get it the trend
is your friend right you don't want to go against the trend so maybe wait until
it closes back above the Bollinger Band it might have closed above it here hard
to tell definitely closed above the lower
Bollinger Band here and as you can see it went up after that all right why not
quite a bit actually so it does not always happen like that not a not a
hundred percent of the time none of these things work perfectly all the time
okay so maybe consider that consider that closing below the lower band is no
less special than closing above the top one and if you see a video or somebody
out there calling themselves an expert and saying oh it's it's a breakout here
this is really special you know maybe think twice about it ask yourself do I
really want to buy this price don't worry about what the guy says in the
video including my videos ask yourself is this a good price for
this stock am i like Warren Buffett asks am i buying a great company at a good
price really that's the question isn't it more than any indicator will tell you
also you can combine any of these things with other indicators
you know volume look look at the volume bars at the bottom combine it with you
know other indicators if you want to okay all right so I just wanted to give
you some some thoughts there all right because I don't want you to get hurt
I don't want you to listen to people maybe you shouldn't be listening to
alright here's another possibility like you know you could look for certain
shapes like do you see the the hammer candle there right you got a hammer
candle here and then you know it doesn't always work like that but that those can
be pretty powerful and and then it you know went up quite a bit after that
hammer candle okay so you know think for yourself folks all right and again thank
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