top of page
  • Writer's pictureRohit Musale, CFA

The Top 5 Benefits of Using Bollinger Bands

I usually recommend not using more than three indicators on your charts.


And one out of those three, has to be Bollinger Bands.


Because in my view, Bollinger Bands are one of the best inventions ever made in technical chart analysis.


So here are five benefits of using Bollinger Bands:


1) Riding the Trend


Let's say you buy a stock, and you find yourself in an uptrend.


The stock begins to move up.


You will find that, during an uptrend, usually the price remains between the middle band and the upper Bollinger Band, most of the time.


So you can use the middle Bollinger Band as your mental stop loss, in a sense that, unless and until the price closes below the middle Bollinger Band, you will not take an exit from the market.


This is how you ride a trend using the Bollinger Bands.


2) Partial Exits


Let's say you buy a stock and within a few candles, you find that the price closes outside of the upper Bollinger Band.


Well that's a great opportunity to take a partial exit from the market, because the price has reached an extreme.


3) Full Exits


As I discussed earlier, if you buy a stock and you find yourself in an uptrend, the market is going up, and the price is fluctuating between the middle band and the upper Bollinger Band.


You could decide to use the middle band as your full exit point in a sense that, when the price closes below the middle band, you would take a full exit.


You would not take a partial exit there, because chances are, now the downtrend might start, and in a downtrend, the price usually stays between the middle band and the lower band.


4) Clarification of W Bottoms and Triple Tops


The W bottoms, also known as the double bottoms and the triple tops, are the most frequently occurring chart patterns, and Bollinger Bands help us clarify the occurrence of these two types of patterns, which you normally could not do properly, if you don't have the Bollinger Bands on the chart.


So Bollinger Bands can be used to clarify the formation of W bottoms and triple tops.


I would like to recommend a book here.


Please read the book, 'Bollinger on Bollinger Bands' written by John Bollinger himself.


In this book, he talks about how to clarify W bottoms and triple tops using the bands.


5) Identification of Continuations and Reversals


This is the most important application.


There are two types of trades in the market.


Continuations and Reversals.


And Bollinger Bands help us identify both those types of trades in the market.


By the way, I have covered Bollinger Bands in detail in level 10 of my Japanese Candlesticks Trading Mastery Program.


Have a look at that course.


Look at that level 10 course, only if you have at least three years of experience in the market.


If you don't have much experience, I recommend that you start with level 1, of my Japanese Candlesticks Trading Mastery Program.


So those are the top five benefits of Bollinger Bands which I wanted to discuss with you today.


Thank you.


Regards,


Rohit Musale, CFA


6 February 2023

7 views

Related Posts

See All
bottom of page