In the 1980s, John Bollinger developed Bollinger Bands®. Since then, they have become a popular technical analysis tool used by traders around the world. Similar to Keltner or Donchian channels, Bollinger Bands® stand out over the price movement of a chart as a series of lines that form an envelope. Outside of retail, Bollinger Bands® have even been applied to manufacturing data to identify flaws in sample fabrics and identify the start and end of the winter surge for pediatric intensive care medicine.
Watch this 2-minute video to familiarize yourself with Bollinger Bands®
Bollinger bands indicate high volatility when the upper and lower bands are far apart and the “envelope” formed is quite wide. Narrow envelopes indicate lower volatility. This can be easily seen from a Bollinger Bands® indicator with 20 periods and 2 standard deviations on almost every daily chart.
Add Bollinger Bands® to a NinjaTrader chart
- Right-click in a graph window and choose Indicators.
- Select “Bollinger” from the list in the upper left pane, then click “Add” at the bottom.
- Configure the parameters on the right, e.g. B. Period and Standard Deviation. (20 or 2 for this example)
- Once the parameters are configured, click OK.
Buy and 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 serving as a guide to profit targets. Other traders wait for the price to cross the upper band before entering a long trade or below the lower band before entering a short trade. Depending on how you plan to use Bollinger Bands® in your trading, the different period and standard deviation values may be more appropriate. It pays to try and evaluate different values for different time periods, markets and trading styles to find the settings that work best for you.
Tips for better mileage with Bollinger Bands®
Finally, it’s important to remember that while Bollinger Bands® can help you spot trends and volatility, there is no silver bullet for identifying trading opportunities. Using Bollinger Bands® along with other technical analysis tools and indicators such as trend lines, moving averages, volume profiles or Fibonacci retracements can help make 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 encourage you to practice your trading ideas in a simulated environment before entering the market live.
Getting started with Bollinger Bands
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