Traders can use Bollinger band traders for a number of purposes and this is part of their appeal. Beginner traders can use them for simple trading methods or expert traders can use the data they provide to perform more complex market analyzes. One of the best uses of bands is to predict price breaks. Proper analysis of Bollinger’s range breakthroughs can be incredibly beneficial to traders as they can suggest that entering the market could be a bad idea if the direction of the breakthrough is unknown. On the other hand, it would be wise to play in the market if the direction of the breakthrough is clearly stated.
It is generally thought that securities are generally traded within a certain range most of the time. Bollinger bands are one of the best indicators to show this, as the price of a security will often bounce off the upper and lower bands over longer periods and is considered to be trading in the range. However, there are cases where the range is broken and often when this can create a drastic change in price and market direction. This is known as price punching and the ability to accurately predict a breakout is crucial for any trader who hopes to make significant money. They can combine trade exchange analysis with price breakout analysis to indicate that a breakout is likely to occur, and this information is invaluable to any trader.
There are a number of characteristics that must be present in order to accurately analyze potential price breakthroughs while using Bollinger bands. First, the volatility of the security should be very low. This is indicated by the space between the upper and lower belts is very narrow. Once these two bands are very tight, it would be ideal for both to move in a horizontal direction. When Bollinger bands behave like this, it suggests that price breakthroughs are inevitable and the market is very likely to move away from the current trend. In this situation, the trader may either choose to leave the market because he is unsure in the direction of breaking the price or he may try to play in the market in order to potentially make money.
The basic method of playing the market in this situation is to put on hold the purchase and sale of either side of the current price. This ensures that no matter how the breakthrough occurs, the market position will be activated, but this could be subject to a false movement where the market initially moves in one direction and then changes to its true course.
Another way to predict the direction of penetration is to use other indicators along with Bollinger band trading methods. This is often a more reliable route and can help the trader feel more secure when moving in the market because the evidence is more significant.