{"id":5455,"date":"2023-11-24T03:27:53","date_gmt":"2023-11-24T08:27:53","guid":{"rendered":"http:\/\/aky.pbv.mybluehost.me\/?p=5455"},"modified":"2023-11-24T03:28:00","modified_gmt":"2023-11-24T08:28:00","slug":"bollinger-bands-in-depth","status":"publish","type":"post","link":"https:\/\/aky.pbv.mybluehost.me\/bollinger-bands-in-depth\/","title":{"rendered":"What Are Bollinger Bands &#8211; How to Read and Use Them?"},"content":{"rendered":"\n<p class=\"\">Technical indicators are at the core of every successful trade, so taking the time to understand and utilize them is practically a necessity. While there\u2019s no shortage of indicators and their various trend signals, Bollinger Bands are a particular favorite among traders and investors. This tool can help measure market volatility, as well as identify overbought or oversold market conditions.<\/p>\n\n\n\n\n\n<div class=\"earn2-ads_pt1_desktop\" id=\"earn2-446233827\"><div id=\"earn2-3343582424\" style=\"margin-left: auto;margin-right: auto;text-align: center;\"><a href=\"https:\/\/www.earn2trade.com\/trader-career-path?a_pid=E2TLLC&#038;chan=code330&#038;utm_source=Affiliate_track&#038;utm_medium=Top_Banner&#038;utm_campaign=Affiliate_blog&#038;utm_id=TCP_English\" target=\"_blank\" aria-label=\"910x300_earn2trade_ad\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN.png\" alt=\"910x300_earn2trade_ad\"  srcset=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN.png 910w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN-300x99.png 300w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN-150x49.png 150w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN-768x253.png 768w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/910x300-Dark-II_EN-770x254.png 770w\" sizes=\"(max-width: 910px) 100vw, 910px\" class=\"no-lazyload\" width=\"910\" height=\"300\"  style=\"display: inline-block;\" \/><\/a><\/div><\/div><h2 class=\"wp-block-heading\" id=\"what-are\">What are Bollinger Bands?<\/h2>\n\n\n\n<p class=\"\">Bollinger Bands are a technical analysis tool used to analyze a traded asset&#8217;s price and volatility to make informed buy or sell decisions. They consist of three lines or bands &#8212; one simple moving average (SMA) line and two standard deviations of the price (upper and lower) lines.<\/p>\n\n\n\n<p class=\"\">The upper and lower bands are plotted on either side of the SMA line while standard deviations determine the distance between them. These deviations represent the volatility range of the asset in its price movements.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/Bollinger-Bands.png\" alt=\"Bollinger Bands plotted on a Finamark chart\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>Upper band &#8211; green line. Lower band &#8211; red line. SME &#8211; light blue line in the middle | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n<\/div>\n\n<figure class=\"wp-block-embed-youtube wp-block-embed is-type-video is-provider-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"lyte-wrapper\" title=\"How to Use Bollinger Bands - The Best Trading Strategies\" style=\"width:853px;max-width:100%;margin:5px auto;\"><div class=\"lyMe\" id=\"WYL_UxBflpdWE-g\" itemprop=\"video\" itemscope itemtype=\"https:\/\/schema.org\/VideoObject\"><div><meta itemprop=\"thumbnailUrl\" content=\"https:\/\/i.ytimg.com\/vi\/UxBflpdWE-g\/hqdefault.jpg\" \/><meta itemprop=\"embedURL\" content=\"https:\/\/www.youtube.com\/embed\/UxBflpdWE-g\" \/><meta itemprop=\"duration\" content=\"PT15M49S\" \/><meta itemprop=\"uploadDate\" content=\"2020-05-01T21:09:03Z\" \/><\/div><meta itemprop=\"accessibilityFeature\" content=\"captions\" \/><div id=\"lyte_UxBflpdWE-g\" data-src=\"https:\/\/i.ytimg.com\/vi\/UxBflpdWE-g\/hqdefault.jpg\" class=\"pL\"><div class=\"tC\"><div class=\"tT\" itemprop=\"name\">How to Use Bollinger Bands - The Best Trading Strategies<\/div><\/div><div class=\"play\"><\/div><div class=\"ctrl\"><div class=\"Lctrl\"><\/div><div class=\"Rctrl\"><\/div><\/div><\/div><noscript><a href=\"https:\/\/youtu.be\/UxBflpdWE-g\" rel=\"nofollow\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i.ytimg.com\/vi\/UxBflpdWE-g\/0.jpg\" alt=\"How to Use Bollinger Bands - The Best Trading Strategies\" width=\"853\" height=\"460\" \/><br \/>Watch this video on YouTube<\/a><\/noscript><meta itemprop=\"description\" content=\"Bollinger Bands are a technical analysis tool used to analyze the price and volatility of a traded asset in order to make informed buy or sell decisions. They consist of three lines or bands \u2014 one simple moving average (SMA) line and two standard deviations of the price (upper and lower) lines. The upper and lower bands are plotted on either side of the SMA line while standard deviations determine the distance between them. These deviations represent the volatility range of the asset in relation to price movements. Whether you want to know more about Bollinger Bands or any other indicators, Earn2Trade has you covered! ----------------------------------------------------------------------------------------------------------------------------------------------------- Read the full Bollinger Bands article here - https:\/\/e2t.to\/2VTy2tZ Get Funded With Earn2Trade! Challenge The Gauntlet Mini\u2122, our intraday futures trading evaluation. The Gauntlet Mini\u2122: https:\/\/e2t.to\/yt-mini-en\"><\/div><\/div><div class=\"lL\" style=\"max-width:100%;width:853px;margin:5px auto;\"><\/div><figcaption><\/figcaption><\/figure>\n\n\n<p class=\"\"><strong>You may also like<\/strong>:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"\"><a href=\"http:\/\/aky.pbv.mybluehost.me\/aggregate-supply-curve\/\" target=\"_blank\" rel=\"noreferrer noopener\">Aggregate Supply &#8211; Curve and Definition<\/a><\/li>\n\n\n\n<li class=\"\"><a href=\"http:\/\/aky.pbv.mybluehost.me\/futures-vs-options-difference\/\" target=\"_blank\" rel=\"noreferrer noopener\">Futures vs Options &#8211; What is the Difference between them?<\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"squeeze\">What is the Bollinger Bands Squeeze?<\/h2>\n\n\n\n<p class=\"\">A squeeze refers to a very tight corridor formed by the contraction of the Bollinger Bands around the price. If, after the period, the price closes above the top band, it will likely continue moving upwards. Conversely, if the price closes below the bottom line, it will likely continue moving downward.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Bollinger Bands Bounces<\/h3>\n\n\n\n<p class=\"\">On the other hand, bounces are based on the premise that price tends to get drawn towards the average. Since the upper and lower bands essentially become our support and resistance levels, it\u2019s not so hard to predict the next possible price move. This concept is the basis for the \u201coverbought\u201d and \u201coversold\u201d strategies.<\/p>\n\n\n\n<p class=\"\">In other words, if the price goes up and nears the top band but doesn&#8217;t cross it, there\u2019s a good chance it will bounce down, which signals a sell action. If it reached the lower band without crossing it, then odds are it will bounce up, signaling a buy action.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Bollinger Bands Squeeze Strategy<\/h3>\n\n\n\n<p class=\"\">The Bollinger Bands squeeze is quite popular. It&#8217;s a  trading strategy that relies on accurately spotting potential price breakouts. Market volatility typically contracts during times of decreasing trading volume, especially just before a major price breakout.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"421\" src=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-1024x421.png\" alt=\"An illustration of the Bollinger Band Squeeze strategy on a Finamark chart\" class=\"wp-image-46710\" srcset=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-1024x421.png 1024w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-300x123.png 300w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-150x62.png 150w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-768x316.png 768w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-1536x631.png 1536w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-770x316.png 770w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze-1400x575.png 1400w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Bollinger-Bands-Squeeze.png 1662w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\"><em>Bollinger Band Squeeze | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p class=\"\"><\/p>\n\n\n\n<p class=\"\">Hypothetically, if you were trading the above chart, then you\u2019d simply identify the correct breakout point, take a long position, and ride out the resulting price rise. In reality, however, you\u2019ll need to confirm the next price movement during a squeeze as the breakout can always go the other way.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"how-to-use\">How to use Bollinger Bands<\/h2>\n\n\n\n<p class=\"\">Like all technical indicators, Bollinger Bands do not give definitive buy and sell signals. They can, however, help predict future price action to help you pick your ideal entry and exit points. As such, you shouldn\u2019t use it as a standalone tool but rather one that complements other technical analysis tools.<\/p>\n\n\n\n<p class=\"\">With that out of the way, let\u2019s look at how to read Bollinger Bands and utilize them for your trading.<\/p>\n\n\n\n<p class=\"\">As mentioned earlier, Bollinger Bands have 3 lines, including the SMA line and an upper and lower line. To read Bollinger Bands, you need to look at all three lines. The simplest way to read the three Bollinger lines is to think about whether the market is considered expensive or cheap.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/Cheap-and-expensive-points.png\" alt=\"Finding cheap and expensive price points on a chart using Bollinger Bands\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>The orange boxes represent expensive price points; the blue boxes represent cheap price points | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<h4 class=\"wp-block-heading\">When the asset price is in a downtrend<\/h4>\n\n\n\n<p class=\"\">When an asset is in a downtrend, the SMA and the upper and lower lines of the Bollinger Bands follow. The 3 lines are lagging behind the price. As the price approaches and breaks the lower Bollinger Band, the underlying asset is considered \u201ccheap.\u201d That\u2019s because, at the -x2 standard deviation, the price moves too far below the SMA. This may be a good opportunity to buy the asset (i.e., place long positions) and is generally not a good time to sell.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Bollinger-Bands-Downtrend.png\" alt=\"Using Bollinger Bands to find buy opportunities when an asset is in a downtrend\" style=\"aspect-ratio:2.6378986866791743;object-fit:cover\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\">When the asset price is in an uptrend<\/h4>\n\n\n\n<p class=\"\">The same thing happens when an asset price is in an uptrend; the Bollinger Bands lag behind. However, as the price approaches and breaks the upper Bollinger Band, the underlying asset becomes \u201cexpensive.\u201d That\u2019s because, at the x2 standard deviation, the price moves too far above the SMA. This may be a good opportunity to sell the asset (i.e., place short positions) and is generally not a good time to buy.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Bollinger-Bands-Uptrend.png\" alt=\"Using Bollinger Bands to find sell opportunities when an asset is in an uptrend\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\">When The Asset Price Is Flat<\/h4>\n\n\n\n<p class=\"\">During flat markets, the upper and lower Bollinger Bands tend to hover very close to the SMA. That\u2019s because, in flat markets, volatility is very low. Because of this, reading the Bollinger Bands doesn\u2019t provide too much trend analysis insight during sideways price action. Once volatility increases, the lines, and price start moving again, which can help with trend analysis again.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Bollinger-Bands-Flat.png\" alt=\"A chart snapshot showing upper and lower Bollinger Bands hovering near the SMA during a flat market\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"strategies\">Bollinger Bands Strategies<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">1. Double Bottoms<\/h3>\n\n\n\n<p class=\"\">This strategy looks to identify signs of lower resistance level testing that usually happens before a sharp price rally. There are two bottoms to look for &#8211; the first should stop below the lower band and occur when there is high volume, while the second represents a resistance test on a lower volume.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/Double-Bottom.png\" alt=\"An illustration of the Bollinger Bands Double Bottom strategy on a Finamark chart\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\">The<em> blue boxes are the bottoms; the purple line is the support; the red arrow is the downtrend; the green arrow is the uptrend after the double bottoms | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p class=\"\"><\/p>\n\n\n\n<p class=\"\">The double bottom essentially signals that the market has established a new short-term support level, so prices are expected to mainly move up from there.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. M-Tops<\/h3>\n\n\n\n<p class=\"\">This strategy is the opposite of the Double Bottoms and is meant to identify trend reversals. In this instance, the price registers two high tops close to or sometimes even above the upper Bollinger Band. Then the price sharply pulls back to form an \u201cM\u201d pattern on the chart.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/M-tops.png\" alt=\"An illustration of the Bollinger Bands M-Tops strategy on a Finamark chart\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>The \u201cM\u201d pattern is represented by the purple lines | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p class=\"\"><\/p>\n\n\n\n<p class=\"\">The idea here is pretty straightforward &#8211; the market has found a new key resistance level, so it might be a good time to short it. That\u2019s because there is a high chance that the price will drop even lower.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Double Bollinger Bands<\/h3>\n\n\n\n<p class=\"\">For the double Bollinger Bands strategy, two Bollinger Bands are required on a chart. The first set of bands is one standard deviation from the SMA. The second set of bands is two standard deviations from the SMA. With five lines on the chart, four trading zones are created:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/Double-Bollinger-bands.png\" alt=\"An illustration of the Double Bollinger Bands strategy on a Finamark chart\" loading=\"lazy\" \/><figcaption class=\"wp-element-caption\"><em>Double Bollinger Bands are represented by the dark green, light green, orange, and red lines | Source: <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"\">The first one is the buy zone. That\u2019s when the underlying asset price is between the 1 standard deviation upper band (light green line) and 2 standard deviations upper band (dark green line). When the price is in this zone, the uptrend is strong. Therefore, there\u2019s a high probability that the price will continue in its bullish fashion. It\u2019s called the buy zone because that\u2019s the zone where keeping long positions and entering new long positions is more likely to bring favorable returns.<\/li>\n\n\n\n<li class=\"\">The second and third ones are neutral zones. That\u2019s when the underlying asset price is between the +1 and -1 standard deviation upper (light green line) and lower (orange line) bands. When the price is in this zone, there is no strong trend. There isn\u2019t enough bullish or bearish momentum.<\/li>\n\n\n\n<li class=\"\">The fourth one is the sell zone. That\u2019s when the underlying asset price is between the -1 standard deviation lower band (orange line) and -2 standard deviation lower band (red line). It\u2019s the exact opposite of the buy zone. When the price is in this zone, the downtrend is strong. Therefore, there\u2019s a high probability that the price will continue in its bearish fashion. It\u2019s called the sell zone because that\u2019s the zone where selling your long positions, keeping short positions, and entering new short positions is more likely to bring favorable returns.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Limitation of Relying on this indicator alone<\/h3>\n\n\n\n<p class=\"\">Based on this data alone, it may seem ideal to put in a buy order every time the price approaches the lower band or sell every time it approaches the upper band. However, just because the market is deemed cheap or expensive doesn&#8217;t automatically mean that you should enter or exit a trade right away.<\/p>\n\n\n\n<p class=\"\">This is because trending markets can sometimes ride the bands for a long time and suddenly stop existing trades using the cheap\/expensive model. This could result in potentially huge losses. That\u2019s why you should always use another indicator, such as the Relative Strength Index (RSI), to confirm the \u201csqueeze\u201d and \u201cbounce\u201d of both upper and lower bands.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"trend\">How Bollinger Bands help with trend analysis<\/h2>\n\n\n\n<p class=\"\">The Bollinger Bands indicator was invented by the renowned trader and financial analyst John Bollinger in the early 1980s. They essentially help you identify possible price reversals by determining overbought and oversold levels using standard deviation.<\/p>\n\n\n\n<p class=\"\">This indicator doesn&#8217;t require too much analysis to arrive at an informed decision &#8212; the upper and lower bands widen when the market is experiencing high volatility and contract during times of low market volatility.<\/p>\n\n\n\n<p class=\"\">With these signals, traders can better follow trends and time their entries more efficiently and trail their stop-loss. Bollinger Bands are popular because they envelop market price and base their calculations on price as well. This way, traders can utilize them to decide whether or not to enter the market at a particular time.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"volatility\">Why is it so important to measure market volatility<\/h2>\n\n\n\n<p class=\"\">Well, for one, volatile markets offer more trading opportunities than those without much activity. More importantly, volatility can often predict the market&#8217;s direction and is a measure of its performance.<\/p>\n\n\n\n<p class=\"\">Back in 2011, Crestmont Research conducted a study of the historical relationship between volatility and market performance. For its analysis, Cresmont measured the volatility of the S&amp;P 500 using the average range for each day. At the end of the study, they concluded that higher volatility signals a higher probability of a downward trending market. In comparison, lower volatility signals a higher probability of a rising market.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Relationship of Volatility and Market Returns<\/h3>\n\n\n\n<p class=\"\"><strong>Monthly Data: S&amp;P 500 Index Average Daily Range<\/strong><\/p>\n\n\n\n<figure class=\"is-style-stripes wp-block-table\"><table class=\"table-design-1\"><tbody><tr><td>&nbsp;<\/td><td><strong>Volatility Rng<\/strong><\/td><td><strong>% Up Month<\/strong><\/td><td><strong>% Down Month<\/strong><\/td><td><strong>Avg Gain<\/strong><\/td><td><strong>Avg Loss<\/strong><\/td><td><strong>Exp Gain\/Loss<\/strong><\/td><\/tr><tr><td><strong>Q1<\/strong><\/td><td>0-1.0%<\/td><td>70%<\/td><td>30%<\/td><td>2.9%<\/td><td>-1.9%<\/td><td>1.5%<\/td><\/tr><tr><td><strong>Q2<\/strong><\/td><td>1.0-1.4%<\/td><td>61%<\/td><td>39%<\/td><td>3.0%<\/td><td>-2.1%<\/td><td>1.0%<\/td><\/tr><tr><td><strong>Q3<\/strong><\/td><td>1.4-1.8%<\/td><td>59%<\/td><td>41%<\/td><td>3.2%<\/td><td>-3.2%<\/td><td>0.6%<\/td><\/tr><tr><td><strong>Q4<\/strong><\/td><td>1.8-2.6%<\/td><td>41%<\/td><td>59%<\/td><td>5.2%<\/td><td>-5.0%<\/td><td>-0.8%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"\"><\/p>\n\n\n\n<p class=\"\"><strong>Annual Data (1962-2011): S&amp;P 500 Index Average Daily Range<\/strong><\/p>\n\n\n\n<figure class=\"is-style-stripes wp-block-table\"><table class=\"table-design-1\"><tbody><tr><td>&nbsp;<\/td><td><strong>Volatility Rng<\/strong><\/td><td><strong>% Up Month<\/strong><\/td><td><strong>% Down Month<\/strong><\/td><td><strong>Avg Gain<\/strong><\/td><td><strong>Avg Loss<\/strong><\/td><td><strong>Exp Gain\/Loss<\/strong><\/td><\/tr><tr><td><strong>Q1<\/strong><\/td><td>0-1.1%<\/td><td>91%<\/td><td>8%<\/td><td>15.8%<\/td><td>-1.5%<\/td><td>14.5%<\/td><\/tr><tr><td><strong>Q2<\/strong><\/td><td>1.0-1.5%<\/td><td>75%<\/td><td>25%<\/td><td>15.7%<\/td><td>-6.0%<\/td><td>10.3%<\/td><\/tr><tr><td><strong>Q3<\/strong><\/td><td>1.5-1.8%<\/td><td>83%<\/td><td>17%<\/td><td>14.2%<\/td><td>-11.6%<\/td><td>9.9%<\/td><\/tr><tr><td><strong>Q4<\/strong><\/td><td>1.8-2.7%<\/td><td>38%<\/td><td>62%<\/td><td>17.7%<\/td><td>-19.4%<\/td><td>-5.1%<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\"><em>(S&amp;P 500 Index: 1962 &#8211; Dec. 31 2011) Source: <a href=\"https:\/\/www.crestmontresearch.com\/blog\/document\/stock-market-returns-volatility\/\" target=\"_blank\" rel=\"noreferrer noopener\">Crestmont Research<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p class=\"\"><\/p>\n\n\n\n<p class=\"\">As you can see in the table above, a low average daily volatility range in the S&amp;P 500 (in the first quartile) results in higher chances of investors making 1.5% monthly and 14.5% annually.<\/p>\n\n\n\n<p class=\"\">On the other hand, in the fourth quartile, the chances of turning a profit on investment are lower and even record potential losses of&nbsp; -0.8% for the month and a -5.1% for the year.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Limitations of Volatility<\/h3>\n\n\n\n<p class=\"\">Keep in mind that while volatility can be a useful tool, it also presents significant investment risk since it increases both your chances of posting gains and turning a steep loss. That\u2019s where Bollinger Bands come in. By carefully analyzing all three bands and the rate of contraction or widening between them, you have a better chance of predicting ideal market entry and exit points.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"setting-up\">Setting Up Bollinger Bands in your trading platform<\/h2>\n\n\n\n<p class=\"\">To use Bollinger Bands, you\u2019ll obviously need an online trading platform or trading analysis tool. There are many available online. For example, <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a> or your own trading or brokerage platform. Here\u2019s also a list of the <a href=\"https:\/\/www.investopedia.com\/best-online-brokers-4587872\" target=\"_blank\" rel=\"noreferrer noopener\">top online brokers in the world<\/a>.<\/p>\n\n\n\n<p class=\"\">For our purposes, we\u2019ll use <a href=\"https:\/\/trade.finamarksys.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Finamark<\/a>, and I\u2019ll walk you through the steps to set your Bollinger Bands.<\/p>\n\n\n\n<p class=\"\"><strong>1.  Open your trading platform and login if required.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Finamark-Sign-In.png\" alt=\"Setting Up Bollinger Bands on Finamark: Sign in\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>2. Search for a symbol you\u2019d like to analyze. We\u2019re using the default one on Finamark.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Finamark-Asset-Select.png\" alt=\"Setting Up Bollinger Bands on Finamark: Choose an asset\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>3. Click on \u201cShow Indicator Options\u201d or something similar on your trading platform.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Finamark-Show-Indicator-Options.png\" alt=\"Setting Up Bollinger Bands on Finamark: Click on \u201cShow Indicator Options\u201d\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>4. Click on <strong>\u201c<\/strong>NEW COLLECTION<strong>\u201d<\/strong> and type in \u201cBollinger Bands\u201d in the search if there is one or look for it in the list of indicators.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"848\" height=\"281\" src=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection.png\" alt=\"Setting Up Bollinger Bands on Finamark: Click on \u201cNew Collection\u201d\" class=\"wp-image-46716\" style=\"width:615px\" srcset=\"https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection.png 848w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection-300x99.png 300w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection-150x50.png 150w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection-768x254.png 768w, https:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2023\/11\/Finamark-new-collection-770x255.png 770w\" sizes=\"auto, (max-width: 848px) 100vw, 848px\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>5. Click on <strong><strong>\u201c<\/strong>Settings<strong>\u201d<\/strong><\/strong> or an icon that looks like a gear beside Bollinger Bands in the Active Indicators SECTION # 1.<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Finamark-Bollinger-Bands-Settings.png\" alt=\"Setting Up Bollinger Bands on Finamark: Click on &quot;Settings&quot;\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>6. Setting it up on the chart, the default settings for the Bollinger Bands would look something like this:<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/05\/Bollinger-Bands-Default-Settings.jpg\" alt=\"Setting Up Bollinger Bands on Finamark: Review default settings\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<p class=\"\"><strong>7. Edit any number of things as you see fit, such as Period, Standard Deviation Multiplier or Style and Colors. <\/strong><\/p>\n\n\n\n<p class=\"\">For example, I changed the color of the upper band to green and the lower band to red. I also made them solid and slightly thicker than the default. Once you set your preferred setting, click Save.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/aky.pbv.mybluehost.me\/wp-content\/uploads\/2020\/04\/Default-Bollinger-Bands.jpg\" alt=\"Setting Up Bollinger Bands on Finamark: Edit default settings as you see fit\" loading=\"lazy\" \/><\/figure>\n<\/div>\n\n\n<h3 class=\"wp-block-heading\">Indicator settings<\/h3>\n\n\n\n<p class=\"\">The setting defaults to a 20-day period for the SMA and sets the upper and lower lines to (x2) standard deviations away. This way, these bands can capture at least 85% of the price data moving between them for that period.<\/p>\n\n\n\n<p class=\"\">The standard Bollinger Bands formula uses a 20-day SMA for the middle line, while the other two are calculated based on volatility compared to the SMA. You can always modify this setting according to your trading preferences. For instance, some traders prefer to calculate the SMA based on a 10-day period only since they do not consider the data before being as relevant as the data from a more recent period.<\/p>\n\n\n\n<p class=\"\">That being said, if you are new to the concept of Bollinger Bands, it\u2019s best to just stick with the default setting until you\u2019ve mastered their interpretation before making any variations.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"bottom\">The Bottom Line<\/h2>\n\n\n\n<p class=\"\">The Bollinger Bands indicator can help you find excellent market entry and exit points. However, as with any technical analysis tool, make sure to first practice using Bollinger Bands and perfecting your predictions before hitting the live market. <\/p>\n\n\n\n<p class=\"\">Remember also that this indicator should not be the only item in your trading arsenal; after practicing with Bollinger Bands for a while, learn how to use another tool, such as the Ichimoku Cloud, or at the very least, stay up to date on the various chart patterns.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Technical indicators are at the core of every successful trade, so taking the time to understand and utilize them is practically a necessity. While there\u2019s no shortage of indicators and their various trend signals, Bollinger Bands are a particular favorite among traders and investors. This tool can help measure market volatility, as well as identify [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":47361,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[117,12540],"tags":[5427],"class_list":["post-5455","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy-finance","category-technical-analysis","tag-featured-article"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.0 (Yoast SEO v27.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What Are Bollinger Bands - How to Read and Use Them? - Earn2Trade Blog<\/title>\n<meta name=\"description\" content=\"Bollinger Bands are one of the oldest technical analysis indicators and a particular favorite among traders. 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