The Bollinger Bands indicator is used to detect market volatility.This small tool will tell us whether the market is uptrend/ downtrends or sideways now. Band 2 shrinks when the market is quiet and Band 2 widens when the market is risen.
Use Bollinger Bands MT4 Indicators How?
See the chart below. When the market was quiet, the band was close to 2. But when the price has risen so fast that the market has become turbulent, the band has moved away.
What is Bollinger Bands Bounce?
One thing you need to know about Bollinger Bands is that the price comes back in the middle of the band most of the time. This is the real idea of Bollinger Bounce. Looking at the chart below, can you tell me –
Where the price might go next?
Now if you say that the price will go down then your answer is correct. In the chart below you can see that the price has come down and the price band has moved between the two.
What you just saw is the Bollinger Bounce. The reason for this bounce is that the band of Bollinger Bands acts as 2 dynamic support and resistance level.
The larger the timeframe you use, the stronger the bands will be. This strategy works well when the market moves around a certain range and there are no specific trends.
What is Bollinger Bands Squeeze?
When band 2 becomes too compressed it usually indicates that there is likely to be a breakout.
If the candle breaks the upper band and goes up, the price usually goes up. And if the candle breaks the lower band and goes down, then the price goes down further, that is, the price goes down.
See the chart above. Band 2 is shrinking. Price is breaking the band above and going up. Based on this chart, do you think the price will increase or decrease?
If you say that the price will go up then you are right. This is how a normal Bollinger Squeeze works.
You will not get the opportunity to trade like this every day. But on a 15-minute chart, you can trade like this several times a week.
Bollinger bands can be traded in different ways. But these two are the easiest and most common trading strategies to trade with Bollinger Bands.