Bollinger Bands is one indicator which many traders tend to have on their charts even if they are actually analyzing other technical analysis indicators and not really Bollinger bands.
Let's see how to use this common indicator to get us more winning trades, mainly with a combination of other technical indicators like stochastic oscillator.
Bollinger bands indicate the volatility of market and hence we should always look for the change in volatility. The change always indicates some major move and we need to catch that up early. So what we need to look for is the following:
1) Bands are widening: Volatility is increasing and further move can be anticipated in the current direction. So we need to ensure that we are correct about the current direction.
2) Bands are tightening: Volatility is decreasing. It can be like silence before the storm and a major breakout may be on the way. But breakout in which direction?
1a) Widening Bollinger Bands (Bullish):
This pattern generally would take place after some band tightening with low volatility shorter candles with range movement)
- The bands are widening with the upper band moving sharply upside and the lower and moving sharply downwards.
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