Bollinger Bands are a simple, but powerful indicator that can easily help you find dynamic areas of support and resistance on the charts.
Investopedia defines Bollinger Bands this way:
“A Bollinger Band, developed and trademarked by famous technical trader John Bollinger, is plotted two standard deviations away from a simple moving average.”
Bollinger Bands have an upper band, a lower band and a center moving average. The upper band typically acts as resistance, while the lower band acts as support. The center moving average can also act as resistance or support within the channel.
When volatility is high, the bands widen, and when volatility is low, then the bands narrow.
How to Use a “Pierce” in the Bollinger Bands to find trades setups:
This is a 15-Minute Nadex Chart of the US 500 Index on Friday, March 17, 2017
The “Bollinger Pierce”
If you see a candlestick break through the upper upper or lower band, it triggers a likely reversal in the market. Think of this like a rubber band around your wrist. The further you pull the rubber band away from your wrist, the faster and harder it snaps back. This can be a great opportunity for a short-term scalping of profits.
How to trade the “Bollinger Pierce” with Nadex Binary Options and Spreads:
- Binary Options: Once the upper or lower band is “pierced”, then I’m looking for the shortest expiry available to trade the reversal. Again, select the strike price that best suits your trading personality.
- Nadex Spreads: The “Bollinger Pierce” can be a good way to scalp some ticks or pips. If a candlestick closes significantly above the upper band or below the lower band, then it can trigger a reversal trade with a tight mental stop/loss.
In the Chart above, three “Bollinger Pierce” opportunities were called out:
- 9:15am EDT: The US 500 Index moved down 50 Ticks
- 11:30am EDT: The US 500 Index moved up 70 Ticks
- 2:15pm EDT: The US 500 Index moved down 80 Ticks
There were ample opportunities to capture a piece of each of those moves with Nadex spreads.
Using the MACD and Stochastic Oscillator for Confirmation.
Notice on the chart above, that when the upper Bollinger Band was “pierced” The Stochastics were overbought and the MACD was crossing over from Bullish to bearish. When the Lower Bollinger band was pierced, the Stochastics were oversold and MACD was crossing over to bullish. Using these indicators can hel confirm your enrty.
Learning how to trade with Bollinger Bands can be helpful for both novice and experienced traders.