How to Trade Bollinger Bands

[audiocure]

Quote from BSAM:

If we're talking about day trading, here's the best way to trade Bollinger Bands:

Trade them for price action. (In other words, don't use Bollinger Bands.)

I would agree with you that BB isn't as useful for day traders - but most people don't day trade, or at the very least diversify over time.

 

[murray t turtle]

Quote from audiocure:

I usually do all analysis on the underlying security before looking at the option itself.

I might look at a couple indicators to confirm direction once the breakout occurs, and then wait for the security's volume to pick up. Usually the biggest moves follow periods of very low volatility.

Hope that helps a bit.

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It does Audio;
& PRICE can go sideways for a long, long time also.

Have stuck BB on volume for a long time also;
not currently doing that now. But helpful till you get that in gut

Mr Bollinger had some excellant interviews back in ACTIVE TRADER MAG years ago. His brillance comments included ''stock are like sheep;
they move in groups/sectors.''[Generally speaking,not infallable]
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He enjoys teaching also, runs Bollinger Capital Management;
a likable young man.

 

[kinggyppo]

http://www.tradingmarkets.com/.site/Forex/commentary/favorite_strategy/The-squeeze-play.cfm

http://blog.afraidtotrade.com/reader-chart-requests/

look up squeeze play by john carter. I like the bands as a fade with a tight stop. The problem with the bands is that they don't predict the future making them as usefull or useless as most other indicators.

 

[Hook N. Sinker]

Quote from riskfreetrading:

I would like to ask how ET people trade using bollinger bands?
I read in a book by Bollinger that there is a frenchman (maybe his name is cahen or cohen?) who has found various ways to trade them, but bollinger did not elaborate more. I was not even sure whether bollinger himself makes anymoney with them. He seemed to dodge the issue in the book.

This is what I have:

Trend following system: Simulated trading using 30 years IBM stock daily closing price data, $ 100000 initial capital and 5 % risk. This method buys if closing price value is greater than the 60 day moving average value plus 2 standard deviations and sells if closing price value is less than the 60 day moving average value. Position size = (5 % of account equity) / (10 x 20 period average true range). Long trades only. Slippage is assumed to be 0.5 %.

Number of trades 54
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 195366
Greatest draw down is 0.1076 (10.76 per cent).
Cumulative Annual Growth Rate (CAGR) is 6.51 per cent.
Instantaneously Compounding Annual Growth Rate (ICAGR) is 3.61 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 3.68 per cent.
Information Ratio is 0.35

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Buy Low Sell High system: Simulated trading using 30 years IBM stock daily closing price data, $ 100000 initial capital and $ 5000 risk per trade. This system buys if closing price value is less than the 10 day moving average value minus two standard deviations. Position is sold if closing price value is greater than the 10 day moving average value plus two standard deviations. This system stops a loss at $ 5000. Long position trading only.

Number of trades 92
Total profit $ 55584
Profit after subtracting $ 100 commission & slippage per trade: $ 46384
Greatest draw down is 0.1894 (18.94 %)

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Another Buy Low Sell High system: Simulated trading using 30 years IBM stock daily closing price data, $ 100000 initial capital and $ 5000 risk per trade. This system buys if closing price value is less than the 10 day moving average value minus 0.5 standard deviations. Position is sold at session opening 4 days after purchase if there is a profit or after 8 days. Notice the logical problem, there is no way to know what the opening price is until after it is reported. Slippage estimated at 0.5 %. Long position trading only.

Number of trades 579
Total profit $ 200272
Profit after subtracting $ 10 commission per trade: $ 194482
Greatest draw down is 0.0814 (8.14 %)
Cumulative Annual Growth Rate (CAGR) is 6.29 per cent.

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These simulations generally do not employ all available capital. I observe large amounts of cash remaining in the account as trades are simulated. The risk level used in these simulations is 5 %. I consider use of 5 % risk per security to be unsafe. Trading a number of securities in a portfolio and using lower risk levels might show greater returns and lesser draw downs.

 

[infolode]

Personally I've always viewed BB's and their variations a distracting statement of the obvious.

If they help you...great. If you're profitable all the better.

 

[riskfreetrading]

Quote from infolode:

Personally I've always viewed BB's and their variations a distracting statement of the obvious.

If they help you...great. If you're profitable all the better.

If you find them obvious you must see something I do not see as obvious. What's the obvious if I may ask. Thanks.

 

[Tums]

Quote from riskfreetrading:

Good observation, but how do we exactly make money with this?

What common denominators do you see during these three phases?

 

[riskfreetrading]

Quote from Tums:

What common denominators do you see during these three phases?

You!

For seriously now. I will think about your question. I guess what you have in mind is rising prices, but the last phase is not really rising prices as they would retreat towards the moving average and possibly go below it.

 

[Tums]

Quote from riskfreetrading:

You!

For seriously now. I will think about your question. I guess what you have in mind is rising prices, but the last phase is not really rising prices as they would retreat towards the moving average and possibly go below it.

There you go, you said it, that's the money making method staring squarely at your eyes.

 

[riskfreetrading]

Quote from Tums:

There you go, you said it, that's the money making method staring squarely at your eyes.

But there are problems with this. First the 3rd phase may lead to losses. The most important problem though is that in hindsight, this looks good. But what guarantees that when we are before phase 1, that there will be a phase 1, then a phase 2 and then a phase 3. In addition how to separate the phases. So where the rules, and the checks and balances?

So my point is: yes things look nice in hindsight, but what are the rules to follow that will guide one during the whole process and with overall success. Remember the question is to trade them. But I think I understand your point (and it is valid one) that there is a possibly systematic progression of a trend. Did I get this point right?