Everyone Shawn Here we're trading and today we're going to go over Bollinger Bands and how they can be used to trade with. So what is a Bollinger Bands They are a technical indicator that was developed by Famous Technical Trader John Bollinger and they are used to measure volatility based on standard deviations. Bollinger Bands consists of a middle band, which is typically the 21-day simple moving average that is bracketed by an upper and lower volatility band to signify overbought and oversold conditions when prices reach these outer bands. So the Bollinger Band components.

when you plot it on a chart, this is what its gonna look like. You're gonna have your upper band, you're gonna have your mid band, and you're gonna have a lower band. What you'll notice is when a stock has consolidated for a while, or trade near the mid bin for an exterior period of time, the outer bands will tighten up. What you can see it's happening right in here.

When the stock is volatile and has moved away from the mid band, the outer bands will start to expand and indicate the volatility is picking up in the stock. The outer bands are based on a standard deviation, so let's go for standard deviation real quick. A standard deviation in stock price terms is a movement away from the normal distribution of prices. So looking at the standard deviation bell curve, you can see that 68% of the time prices will be within one deviation of the average and 95% of the time prices will be within two standard deviations.

So what that tells us is when stock prices get far away from their average price range, they are more likely to revert back to the mean and is why Bollinger Bands can be a great tool for finding overbought and oversold conditions. I have my Bollinger Bands set at two sand roots, two standard deviations and according to the bell curve, that means that prices are within that those deviations and 95% of the time. So I know when prices are outside the the outer bands, then we are more likely to see some kind of pull back or retracement That doesn't mean that I look to take a reversal trade just because prices are outside the bands because Stockton trend for multiple days, but especially with less volatile stocks. I Know that prices can't sustain staying outside of these bands for too long and the longer they remain outside, the more likely chances are for a reversal.

So that's what standard deviation is. So let's go over a couple strategies here. This is a Bollinger Band momentum trade that I like and basically what you're looking for is tight consolidation. As you can see here, an apple and then you want to see a break above or below the outer band on increased volume.

So we have this tight consolidation and we're looking for a breakout which we got here an increased volume and then we had a nice run up. Following that for a nice little momentum play. The way you want to manage it is you want to get in once you get a close above the outer band and confirm it with the high volume and I like to use the mid band as my stop but you can use you know the the low, the consolidation or whatever works with your trade plan. So once you get in you want to look to take your profit based on your risk ratios to two one three two one and you like to follow it as much as you can outside the bands and usually I'll take my trade off once.

I get a close back below the band the I want one of the outer bands so this is a good momentum trading for using Bollinger Bands Let's have a look at reversals. So what you want to look for in a Bollinger Band reversal is a strong move with the clothes outside of the band. So we had a really strong move here, had closes outside of the band on high volume but then you want to see them a candle close back below that outer band on high volume again. So here we had this really nice strong drive up.

you got some closes above the outer band and then we had really strong volume day that close back below the band again. So what you would do is look for a short once the band closes or once the price is close back below the outer band and look to cover as it comes back down into the mid band here. I Usually place my stop at highs so would have been shorting right around in here. Had my stop up in here at highs and then would have been looking to cover in this area and usually I'll leave a little bit of a position on we might stop the breakeven and look to see if I can get a move down to the bottom band here so that's a This is a good reversal pattern to look for when using Bollinger Bands and some training notes when using Bollinger Bands.

Trading with Bollinger Bands work best when you use other indicators to confirm signals like oscillators, support resistant levels, and volume. Also, Bollinger Bands are great indicator for determining how volatile stock is and finally during strong trends. prices can stay on or just outside the outer bands for an extended period of time and this is important to note because when you're trading reversals, you want that confirmation of that that bar to close back below the outer band because you know they can easily stay outside and trend for a long period of time. So that's some trading strategies with Bollinger Bands If you have any questions, let us know in the comments below.

Alright see you guys next time. Oh hey I didn't see you there. Well I Was just working on the dream board for my next home run trade. hopefully it comes soon.

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