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Bollinger Bands

Bollinger Bands have several uses but for the mechanical trader the primary use is price in relation to the upper and lower bands as defined as overbought or oversold. Generally they are set at a period of 20 with a standard deviation of 2.

 

Bollinger Band overbought/oversold – a trigger that asks price to reach a band to signal overbought or oversold

Example:

  • If trend is bullish when price hits lower Bollinger band look for a trade event
  • If trend is bearish when price hits upper Bollinger band look for a trade event

At this point we have covered several key trigger tools that the mechanical trader could employ. The following are triggers employed more so by discretionary traders. As stated before, the discretionary trader may use their analysis to gather evidence that a possible trade is setting up, and along with the tools mentioned above, there are some additional tools we suggest.

 

 

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trigger: Fibonacci

 

  

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