What are Bollinger Bands? How are they useful?

Kind of confused with which indicators to use, I trade in Commodities (mostly Natural Gas)… currently use resistance/support lines, EMA & RSI

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Hi

Bolinger band is a volatility Indicator.

This is one of the most popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.

Bollinger Bands are calculated at a specified number of standard deviations above and below the moving average, causing them to widen when prices are volatile and contract when prices are stable.

Bollinger originally used a 20 day Simple moving average and set the bands at 2 standard deviations, suited to intermediate cycles.

Source: http://www.investopedia.com/terms/b/bollingerbands.asp

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There are three bands/ sections in Bollinger Bands. Upper, Middle & Lower bands. Middle band is a 20SMA. Bollinger Band Indicates BUY when price moves above Middle Band, towards the Upper Band. Indicates a SELL when price moves below Middle Band towards Lower Band. My observation is that when price crosses Middle Band, RSI is also crosses 50 levels.

Well, with Bollinger Bands, BUY/ SELL signals may not be as accurate in lower time frames and many times may result in Stop Loss-es. I think you can try using Bollinger Bands in H1 or H4 time frames [especially for commodity market because you will have 14 H1 candles]. You can also try using 50& 75 EMA crossover. But NOT to use Bollinger Bands and EMA together.

Both the set-ups may work well in a Trending market and NOT in a Sideways/ Flat market.

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Bollinger Band is a forward looking Volatility Indicator. It has 3 components to it. The central average line, upper band and lower band. The central line is the average line. If you have selected 30days, then the central line is the last 30 days moving average line.

The upper band is 1 standard deviation higher than the average and the lower band is 1 standard deviation below the average.

BB works on the premise that stocks prices over a long term reverts to mean. So if the stock price is at the higher band (1 standard deviation away) then there could a 66% probability that it can revert to the average line.

Likewise, if the stock price is at the lower band, there is a 66% probability that it comes back to the average line.

In simpler terms, you short the market/stock when the stock price hits the upper band with a target the price as reflected on the central line. If the price is at the lower band, you buy with a target as reflected by the central line.

BB is one of the better quality indicator as it has some tangible math behind. You can improve the efficiency from 66% t0 95% buy tweaking few parameters in your BB settings.

Happy Trading.

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Bollinger + EMA Scalping

Bollinger + EMA Scalping

My understanding of scalping of is short trades, trade that should end within one hour. These trades tend to be high risk and high reward and are known for adrenaline rush. So get ready and lets scalp….

Settings 
Bollinger Bands – 20
EMA – 12
Time Frame – 5 – 60 min (recommended M15)

There are four set of entry and exit rules to this setup.

Entry/ Exit 1 
1 – look for price action going out of Bollinger Band (20)
2- Enter short at first candle opening inside the band 
3 – set profit stop at EMA 12 
4 – Stop limit just outside of Bollinger band.

Entry/Exit 2
1 – Short Entry on open of candle under EMA 12
2 – Profit limit at bottom line of Bollinger Band
3 – Stop Limit at middle line of Bollinger Band

Entry/Exit 3-4
1 – Look for price action going out of bottom Bollinger Band
2 – Enter Long at open of candle inside Bollinger Band
3 – Profit limit at EMA 12
4 – Stop Limit 5-10 pip outside of lower Bollinger Band

Entry/Exit 5
1 – Long Entry on open of candle over middle Bollinger Line
2 – Profit limit at top of Bollinger Band
3 – Stop limit at EMA 12

Bounce off setup
Short – Price action bouncing off EMA 12 toward bottom Bollinger line, Entry at candle open with take profit at bottom Bollinger line, Stop limit at middle Bollinger line.
Long  - Price action bouncing off EMA 12 towards top Bollinger line, Entry at candle open with take profit at top Bollinger line, stop limit at middle Bollinger line.

Caution – DONOT trade when price action is between EMA12 and mid Bollinger line.

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Hi Niranjan, thank you for your reply what do you mean by “H1 or H4 time”?

Hi,
I mean 60 minutes, 240 minutes. candles These are among the standard time frames followed by traders. In the Nest Plus chart, you can set the time frame to 60, 240 respectively. Advantage with Nest Plus chart is you can set time to non standard time frames too.

Very nice Karthik , if you click on comment and answer, instead of answer and answer, will not be able to upvote. you… .:slight_smile:

LOL :slight_smile: Nithin

Tried posting an answer, but it dint give me an option to answer :slight_smile: …or maybe I’ve missed something.

thank you, Karthik… that solves it! :slight_smile:

Karthik’s original comment has been converted into an answer.

Thanks for the information Santosh, very helpful :slight_smile: