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How Traders Use Bollinger Bands

Bollinger Bands

In the 1980’s, John Bollinger developed Bollinger Bands®. Since then, they have become a popular technical analysis tool used by traders worldwide. Similar to Keltner or Donchian channels, Bollinger Bands® plot over the price action of a chart as a set of lines forming an envelope. Outside of trading, Bollinger Bands® have even been applied to manufacturing data to detect defects in pattern fabrics, as well as helping identify the start and end of the winter surge for pediatric intensive care in medicine.

Watch this 2-minute video to familiarize yourself with Bollinger Bands®

Volatility

Bollinger bands signal high volatility when the upper and lower band are far apart and the “envelope” formed is quite wide. Narrow envelopes indicate lower volatility. This can easily be seen by using a 20 period, 2 standard deviation Bollinger Bands® indicator on just about any daily chart.

Add Bollinger Bands® to a NinjaTrader Chart

  1. Within a chart window, right-click and select “Indicators”.
  2. Select “Bollinger” from the list in the upper left-hand section, and then click “add” below.
  3. Configure the parameters on the right, such as the period and standard deviation. (20 & 2 respectively for this example)
  4. Once the parameters are configured click OK.

Buy & Sell Signals

There are many different ways to interpret and make trading decisions based on Bollinger Bands®. Some traders use lower band touches as buy signals and upper band touches as sell signals with the middle band acting as a guide for profit targets. Other traders wait for the price to break above the upper band before entering a long trade or below the lower band before entering a short trade. Depending on the way you wish to use Bollinger Bands® in your trading, you may find the different period and standard deviation values more appropriate. It’s worthwhile to try out and evaluate different values for various timeframes, markets, and trading styles to find the settings that will work best for you.

Tips for Better Mileage with Bollinger Bands®

Lastly, it’s important to remember that while Bollinger Bands® can help you identify trends and volatility, there is no magic bullet for identifying trading opportunities. Using Bollinger Bands® along with other technical analysis tools and indicators, such as trend lines, moving averages, volume profile, or Fibonacci retracements can help inform more holistic trading decisions, which in turn can lead to better consistency in your trading practice. NinjaTrader is always free to use for simulated trading, and we strongly recommend you practice your trading ideas in a simulated environment before entering the market live.

Get Started Using Bollinger Bands

NinjaTrader supports more than 500,000 traders worldwide with a powerful and user-friendly trading platform, discount futures brokerage and world-class support. NinjaTrader is always free to use for advanced charting & strategy backtesting through an immersive trading simulator.

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