Popular Science: How to Make a Good Deal with Bollinger Bands?

Bollinger Band (Bollinger Band), also known as Pollinger channel, is a very practical technical indicator designed according to the standard principles in statistics. It is composed of three upper, middle and lower rail lines, and the upper and lower two lines can be regarded as resistance lines and support lines. Generally, the price fluctuates within the range of the upper and lower rail lines, because Bollinger Band is also calculated according to the K line, so Bollinger Band will change with price fluctuations.

The formula for calculating Bollinger bands

Upper rail line = 20-day moving average + 2SD (SD is the standard deviation of the 20-day closing price)

Middle trajectory = 20-day moving average

Lower rail line = 20-day moving average -2SD

Most importantly, let's take a look at the basic usage of Bollinger Bands:

1. When the price crosses the lower rail line from bottom to top, it is a buy (long) signal

2. When the price crosses the upper rail line from top to bottom, it is a sell (short) signal

The above figure does not provide a good explanation of these two signals, because it is also necessary to combine the direction of the Bollinger Band track line with other indicators for observation. The buying signal on the right side of the figure can also be clearly found to belong to the engulfing pattern on the K-line pattern.

3. The middle rail of the Bollinger Band is a buy signal

4. The price crosses the middle rail of the Bollinger Band as a sell signal

5. Bandwidth shrinkage: When the Bollinger band bandwidth is very narrow, it indicates that the market is about to choose a breakthrough direction. Especially when the price shrinks after a significant increase in bandwidth, it should be positioned squaring in time, because there may be a large drop immediately. It is particularly important to note that there will be more false breakthroughs at this time, which need to be identified in time.

In addition, as shown in the chart above, it can be seen that the use of indicators has a certain role, but how to use them correctly and how to prevent various traps requires careful consideration by readers. Another point is that there will be some differences between the review and the actual application. These differences are more reflected in the details of key positions, and details can also determine success or failure. Many details are also where we need to carefully analyze.