Bollinger Bands Trading Strategy: Beginner's guide 

I'm going to talk about a powerful stock trading strategy using the Bollinger Band indicator. We'll also delve into the characteristics of the Bollinger Band, different periods, and standard deviations used for stock trading. I'll show you how to recognize different buy and sell signals and when is the best time to enter and exit the stock market.

John Bollinger was the creator of the Bollinger Band indicator in the year 1980. The main task of this indicator is to correctly identify the type of market and the direction of the trend, filtering out errors of other indicators. While no one in the world can predict prices with certainty, Bollinger Bands have been able to predict the future with a 95% probability.

Bollinger Bands, unlike classic channels, are dynamic. They adjust their slope and width based on new market conditions. This dynamic nature helps the indicator send accurate signals to assist traders in making the best choices for entering and exiting the market.

The Bollinger Band indicator consists of three elements:

1. Median: This is the 20-day period simple moving average (SMA).
2. Upper Band: This serves as the resistance boundary.
3. Lower Band: This acts as the support boundary.

The upper and lower bands have a distance of plus or minus two standard deviations from the SMA. This distance measures statistical dispersion. The wider the Bollinger Band, the higher the price fluctuation in the last month, indicating increased volatility and trend strength. Conversely, a narrowing band suggests decreased volatility and trend strength.

When it comes to recognizing support and resistance, there's no indicator that can compete with Bollinger Bands. Different periods and standard deviations used in Bollinger Bands are essential for various markets and assets. The default values are a 20-day SMA and a standard deviation of 2. As you lengthen the period involved, you need to adjust the number of standard deviations accordingly. For example, with a 10-day SMA, you might use 1.5 standard deviations, and with a 50-day SMA, you might use 2.5 standard deviations.

Bollinger Bands Buy Signals:

1. In a downward trend, a buy signal occurs when the price exits the lower band with a bearish candle, then returns inside the channel and closes above the lower band with a bullish candle.
2. Another buy signal occurs when you have two peaks at the end of a downward trend, and the second peak is lower than the first one. If the first peak is completely outside the lower band, and the second one is inside the Bollinger Bands channel, it's the end of a downward trend and generates a buy signal.

Another way BB Buy Signal

Bollinger Bands Sell Signals:

1. In an upward trend, a sell signal occurs when the price exits the upper band with a bullish candle, closes outside the upper band, then returns inside the channel and closes with a bearish candle.
2. Another sell signal occurs when you have two peaks at the end of an upward trend, with the second peak lower than the first one. If the first peak is completely outside the upper band and the second one is inside the Bollinger Bands channel, it's the end of an upward trend and generates a sell signal.

Another way BB Sell

Remember that, as with all trading strategies, you should have a solid trading plan that includes precise risk parameters.

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