The Bollinger band is an indicator which was developed by John Bollinger, a veteran market technician. In day trading, it allows a day trader to compare the relative cost of a security in a period of time and the pace at which its price is moving up and down. The rate at which a security’s price is moving up or down is likewise termed as a security’s volatility.
The three portions of a Bollinger band are the center, upper and lower bands. The middle band is generally a simple moving average. The middle band’s standard deviation + two would be the upper band and the middle band’s standard deviation minus two would be the lower band. To better comprehend these, view a sample chart of the Bollinger band in a day trading blog.
There are actually 3 ways of using the Bollinger band in day trading. First of all, the Bollinger band could be used to evaluate if a stock is excessively purchased or excessively sold. If it has pushed through the lower band, it is deemed excessively sold. It is almost always a good verdict if a day trader concludes to buy a stock that has hit the lower band simply because this lets him to take advantage of the stock’s price at a time it is oversold.
It’s next capability is to help a day trader determine the trend’s strength in day trading. A stock that’s jumping off the middle with its tips constantly touching the upper band displays a strong upward trend. A strong downward trend, on the other hand, is definitive when the stock has its tips continuously reaching the middle band and its bottom level touching the lower band.
Another use of Bollinger bands in day trading is to determine reversal signals: double top sell signal or double bottom buy signal. In the event that a stock’s first top touching the upper band is accompanied by a second top that isn’t coming in contact with the upper band, it is deemed a double top sell signal. The double bottom buy signal happens whenever a stock’s current low touches the lower band and…