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Yesterday we reviewed Fibonacci retracement levels as a good indicator for technical analysis in options trading. Today we yet review another tool that can help you make money in Olymp trade – Bollinger bands.
Bollinger Bands chart was developed by John Bollinger and it is used to measure market volatility.
Remember from our introduction of currency pair option (download free trading ebook here to revise); a more volatile market gives you an opportunity to make more money trading.
But with all that fluctuation in an active market, it isn’t easy to pick a trend with the naked eyes, or is it?
That’s when you must use the bollinger band tool!
What is a Bollinger Band Tool?
Bollinger bands shows when a market is quite (less volatile) or when a market is loud (Volatile)
And if you are keen you will notice the bands contracting when the market is less volatile and expanding when there is volatility.
It is just like an iron metal; hard to bend when cold and easy to bend when hot.
Use the same concept with Bollinger bands and strike when the market is hot and expanding. I guarantee you will make profits with this tool.
Here’s a graphic difference between the two conditions: –
How to Pick Entry Points With Bollinger Bands.
A cool thing to take from this tool is – asset prices tend to return to the middle of the bands.
That’s the whole theory behind Bollinger bounce.
Example, in the image below the new asset price has reached the top of the bands.
Going by our theory that asset prices always bounce back to the middle of the bands, it is only logical to predict that the next market move would be a downward trend. Or is it?
Winning is easy. Hahaha…
Such bounces occur because these bands act as support and resistance levels.
You may want to expand your chart time frames for more enhanced results.
And not to forget that the bands will work better for you in ranging markets than in trending markets.
Using the Bollinger Bands in Trending Markets.
A squeeze of these bands is usually an indication of an impending breakthrough.
A breakthrough which involves your candlesticks going out of the bands towards the top is a clear sign that you will continue seeing higher prices.
On the same breath; if you see your bands breaking out toward the bottom of the bands then that is usually a clear indication that prices will continue to fall.
Use Bollinger bands, to catch a early moves – and act fast to make easy profits.
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