Bollinger Bands Width Trading Strategy // indicator explained tutorial day trading squeeze forex keltner channels secret thinkorswim options stocks technical david moadel
welcome to looking at the markets with David Modell today we're going to look
at Bollinger Bands but specifically at Bollinger Band width and by that I mean
how wide how far apart are the upper and lower Bollinger Bands alright
so let's take a look at that and we're gonna go on stockcharts.com I want to
give them credit for all these charts okay
and right now we're looking at the daily candlestick charts for COPD
ConocoPhillips alright so each of these candlesticks represents one day of price
action and below it I've got the BB width that's the Bollinger Band width
and it's on the standard settings on stockcharts.com
and show you how to get it you go down if you're on stockcharts.com
and under indicators you go to Bollinger Band width and just leave it on 20 and 2
which is you know 20 is the look-back period and 2 is how many standard
deviations it's the same as when you put on the Bollinger Bands alright the same
parameters same standard default parameters alright so I'm on
ConocoPhillips as an example notice that I did not put the actual Bollinger Bands
on the chart why not well because I don't want to be distracted if you start
if you want to use the width okay you can put the Bollinger Bands on
separately then the width okay the width is down here and this
indicator tells how wide the Bollinger Bands are if the top and if the upper
and lower bands are very wide apart then you see it go to the top here okay if
the Bollinger Bands are narrow or close together then it goes way way down okay
and usually it's somewhere in the middle alright and when it gets near let's say
above 15 closer to 20 that's why that's very wide and that
it's at or below five that could be considered narrow Bollinger Bands
especially if it's below five but when it gets toward five that's when you know
that they're narrow now you can put the Bollinger Bands on there but you know if
you start looking at the bands instead of using the width indicator on its own
then you're gonna start interpreting on you're gonna start putting your
interpretation on to whether the bands are narrow or wide and you might look at
bands that are not particularly narrow and you might just because you're being
impatient you might say well they're narrow enough or if you're waiting for
them to get really wide you might get impatient and you might say well they're
wide enough all right whereas if you take the Bollinger Bands off of out of
the equation you know off of your chart and just put on the width indicator
there's no lying here there's no deception the numbers don't lie the
charts don't lie and you can wait more patiently especially if you're waiting
for the Bollinger Bands to get really narrow alright so you know before let's
say you want to put on a say you want to buy a straddle or you want to buy a
strangle okay because when the implied volatility the
IV of options gets really small and the Bollinger Bands are really narrow ok so
there's not much volatility there and you're when it gets like that when the
Bollinger Bands get really close together or narrow you might expect a
breakout to happen fairly soon and you might expect an IV or implied volatility
expansion to hopefully happen soon that's pretty typical it's not
guaranteed but it happens often alright and so if you want to buy a straddle or
a strangle that might be a good time to do it and so you might want to wait
until the Bollinger Bands are really close together in other words you want
to wait until the width is really low like 5 or below 5 on this chart all
right on the standard settings here and look what happened if you if you waited
until the the width indicator got really really low like it's below 5 here for
ConocoPhillips ok so you might have bought a straddle or strangle here
and then you're hoping for a big move so you can you you can gain you know you
can profit from the implied volatility expansion and from the from the big
price movement which you need if you want a profit from us buying a straddle
or strangle look what happened big move big move afterwards okay so you know the
Bollinger Bands get really narrow and then the big move can happen afterwards
all right let's look at some other examples here's Apple the daily chart
and if this is 5 you can see it was around 5 a few times but it went below 5
here ok like really low and then if you had bought a straddle or strangle here
you would have done probably pretty well because boom big move to the downside
notice that big moves are not always as we saw in ConocoPhillips we saw a big
move to the upside it could also be to the downside and if you buy a straddle
or strangle beforehand you can profit from a big move up or a big move down
here it is again ok it's below 5 and look at that if you had bought a
straddle a strangle here you would have done really well I mean that's a big big
extended move all right let's look at lows and we can see take a look the the
Bollinger Band width got really low here like down to 2.5 my goodness and if you
had bought a straddle or strangle here or even if you bought it when it was a
little bit below 5 here even if you bought it back here if you had just been
a little patient waited a few days you would have had the nice big look look
how far down this went intraday on this candle here you would have had a nice
profit on your straddlers are probably is it your strangle as well okay and
here's Tesla all right as we can see down here look how low it went down here
went kinda low here but it really went closer to 5 around here and if you had
bought a straddle or strangle here you probably would have done quite well from
this really extended down move alright again the big moves can be way up or way
down and if you're playing a straddle or strangle a long position for a
volatility expansion a big down move can really benefit you
as can a big up move as well alright and so again taking the Bollinger Bands just
temporarily it doesn't mean you have to keep them off your chart all the time
but just take them off perhaps and just look at the width as a separate
indicator and that way you're not putting your interpretation on on how
wide or narrow it is you can just see in that single line there and so you could
be more objective and less interpretive and I encourage many people to be more
mechanical with their trading and putting less interpretation on it
because often times when it comes to technical trading putting or putting
your interpretation into things really just means putting your biases into it
or your your impatience or your expectations or your hopes and you know
hope is not really a strategy as they say alright okay so that's Bollinger
Band width maybe something you've never used before and never really considered
or never used it in the way I just explained it so if you'd like more help
with this with technical technical indicators or you'd like help putting
together a trading or investing plan I can certainly assist you you can email
me at any time my name is David Modell my email address is David Modell act
gmail.com thank you so much I really appreciate it I hope you'll give this
video a thumbs up on youtube leave a comment and subscribe to my youtube
channel thanks a lot I really appreciate it and I'll talk to you again soon
take care Tyger Tyger they're gonna take it off me Tyger Tyger they're gonna take
it off me tight tight