Trade Stock Indices

Bollinger Bands Price Action in Range Bound Trading Markets

Bollinger Bands are also employed to detect instances when a stock market trend is excessively extended. The rules outlined below are taken into account when using this stock indicator within a sideways indices trend.

Bollinger Bands hold substantial importance as they are instrumental in yielding signals that suggest an imminent breakout in the price movement of indices.

These strategies don't work when the market is trending for indices: they only work when Bollinger Bands are moving sideways.

  • If the stock trading market stock price touches/tests the upper band it can be considered overextended on the upside - over-bought.
  • If the stock trading market stock price touches the lower band the stock price can be considered overextended on the bottom side - oversold.

One way to use Indices Bollinger Band is to use the overbought and oversold rules above to decide when to buy and sell during a stock market that is not trending.

  • If stock price has bounced off the lower band crossed the center-line MA then the upper band can be used a sell level.
  • If stock price bounces downwards off the upper band crosses below the center moving average the lower band can be used as a buy level.

Trading Bollinger Bands in Range Bound Trading Markets

Application of Bollinger Bands Within Markets Characterized by Range-Bound Movement - Bollinger Bands Trading Methodology

In a ranging stock market like the one shown, touch points on the upper or lower bands serve as targets for profits in long or short trades.

Trades involving indices may be initiated when the equities market reaches either its upper resistance vicinity or its lower support threshold. A protective stop-loss order must be situated slightly above or below the entry point, depending on the direction of the indices trade, to mitigate risk should the price movement breach the established Bollinger Band range.

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