So let's talk about Bollinger Bands.
You see, bollinger bands are a very
powerful indicator, but most
traders are using it in the wrong
way. So today I'm
going to show you how to use them
in the right way.
Now, first of all, bollinger bands
are a super simple concept
because it's basically a simple
moving average and two standard
deviations.
Let's jump on the charts and let me
show you exactly what it looks like.
If you're bringing up the bollinger
bands on your charting software,
no matter what you're using.
The software that I'm using here is
TradingView, but you can use
ThinkOrSwim, TradeStation,
finance.yahoo.com charts,
free charts, whatever it will be.
Then you will see that there's a
center line, which is a moving
average, and you see a standard
deviation above the
moving average and below.
Now bollinger bands come with
three settings.
So let's take a look at the three
settings here.
First of all, the length.
And the standard length here is
either 20 or
21 days. So doesn't really matter
what you choose, whatever you're
charting software suggests is a
good starting point here.
And then it also asks about how
many standard deviations?
And again, the default here
is 2.
So let's start with 2 standard
deviation.
Now, most people, this is where
I'm telling you they're using it in
the wrong way, because they're using
it as a so-called trend
fading system.
What does it mean? Well, let me show
you an example.
Let's go to IBM because we used IBM
in our previous video about support
and resistance. And if you would
like to see the video we'll post a
link in the description so that you
don't miss it.
So here you see IBM has been
going sideways for most of the time.
We applied the bollinger bands here,
and this is how many people use the
bollinger bands.
You might notice that most of the
time prices are within
the bollinger bands depending on
the setting. So, for example, the
settings that I told you here means
that 98%
of the closing prices are
within the bollinger bands.
So this is why some people say
as soon as prices move outside
bollinger bands, as they do here on
the left side of the screen, you
start buying because it is very
likely that they are going back
inside the bollinger bands.
Then they also say if bollinger
bands close outside the upper
band, this is when you would be
selling, because it is
very likely that now the bollinger
bands go back inside the bands.
And you see, yes, in a sideways
market this is a viable
strategy. But you see, honestly,
this is not the most
powerful way to use
bollinger bands.
So I'm going to show you in a moment
here the most powerful way
how I have been using bollinger
bands for many, many years
and when I'm using bollinger bands,
how I still use them.
So let me show you, because I
want to actually go to the Nasdaq.
And here you see, well the Nasdaq
is kind of a trending market.
So let me show you how to use
bollinger bands in the right way.
You will see that often prices
are touching the upper band.
So when markets are trending,
you will see that prices are
touching the upper band.
The question is, how exactly do you
use them?
If the market is in an uptrend
as it is right here, you will see
that the upper bollinger band is
turning up and prices
are touching the upper bollinger
bands.
For how long?
Until the upper bollinger band
is turning around.
So as you can see here, then you see
here that it is turning around.
Now also in a downtrend,
so take a look at the down trend
here. This is when you will see that
the lower bollinger band is
acting like a trend line below
the prices. So whenever you see
that the lower bollinger band
is pointing down and prices
are touching the lower bollinger
band, this is
when now the market is in a
downtrend.
For how long, until when?
Well, as soon as you can see that
the bollinger band is flattening
or turning around, this
means that right now the downtrend
is over. Now let me give you another
example, this is actually an example
from PowerX Optimizer, a stock
that I'm currently in.
So I want to show you VSTO.
I believe I entered VSTO
yesterday and you also
see it here.
See, bollinger bands at first
are going sideways.
And then when you see that
the bollinger bands start pointing
up and prices are touching
the upper bollinger band,
you see, you get the idea.
You see that now the market is an
uptrend. Now how long is the market
in an uptrend? Well, pay close
attention here to the upper
bollinger Band.
As soon as the upper bollinger band
starts flattening, or starts
turning around, this
is when the uptrend is over.
So let's see.
Just pay attention to the upper
bollinger band right here.
You see how right now the upper
bollinger band is flattening?
This means that right now
the uptrend is over.
Now, the question is, why do I
not use the bollinger bands?
Well, because I found that the three
indicators that I'm currently using
are absolutely perfect for this.
So I'm using, as you know, the
RSI, stochastics and MACD.
And if you want to learn more about
how I'm using it, I'm posting a
video. I believe it's called The
Best Indicator for Trend
Trading and this is where I explain
why I'm using this.
And you see right here,
as the market is going up
in VSTO, we see green
bars. And green bars are happening
when the RSI is above 50,
the stochastics is above 50 and
the moving average is above, the
MACD is above it's moving average.
And you also see right now here, can
you see this? We have a black bar.
And a black bar means that now the
market is more likely to go
sideways and this is when the
bollinger bands turn around.
Now, let's take a look at this here
and let's see when do we see
that there is a downtrend going
on? Right here, you see, when we
plot the red bars.
And then we see the lower
bollinger band, see, the lower bollinger
band is turning around, it
is pointing down right now.
And we also see that prices
are touching the lower bollinger
band. Now, how long does this
downtrend last?
Very, very short.
Right here, the lower
bollinger band is flattening out
and this means that the downtrend is
over.
Now, right now, as you know, if
you have the PowerX Optimizer,
then you probably also entered VSTO.
Was it yesterday or two days ago?
Probably on Monday.
And you see, it gave us a perfect
buy signal here, according to the
PowerX strategy that
you all know already.
And you also see that the bollinger
bands are confirming it.
Right now it's nicely
pointing up, prices are touching
the upper bollinger band.
Let me just give you a brief
summary. If you need help
identifying a trend,
bollinger bands can help you a
lot.
Because here's how it works.
In an uptrend the upper Bollinger
band will point up and prices
will constantly touch the upper
bollinger band.
How long do you have an uptrend?
As long as the bollinger band points
up. Once the bollinger band starts
flattening, the upper one, the upper
bollinger band, once this starts
flattening now most
likely the uptrend is over.
In a downtrend, you will pay
attention to the lower
bollinger band. And you will see
that the lower bollinger band is
pointing down and prices
are constantly touching the lower
bollinger band. How long do you have
a downtrend?
Well, as long as the lower
bollinger band is pointing down.
Once it starts flattening, or
even turning around, this means
that the downtrend is over.
I encourage you to play around
with bollinger bands.
Plot them on your chart, and you
will see your favorite
stocks in a much, much different
light. Anyhow,
does this help? Has this been
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