Question regarding Bollinger Bands

[Robert]

I am interested in learning how Bollinger Bands are used in trading. What is the purpose of this tool? Is anyone trading effectively using Bollinger Bands? Thank you

[ant]

Linda Raschke uses BB after a trend day when consolidation is expected. She uses it to fade the upper and lower BB and uses the 20EMA as the target. She only takes the first 2 signals in the morning though. The 3rd signal is slightly positive based on her testing. This setup is not used in the afternoon session. In general, she doesn't use BB for her other setups, she uses the Keltner Channel. BB may work better with Options because they are both volatility based.

[Soultrader]

Very interesting Antonio. Bollinger Bands are useful when volatility is low. Hubert and John Carter has an custom indictor called the TTM Squeeze which is a combination of bollinger bands and keltner channels. When the bollinger bands are inside the ketlner channel, it gives of a first signal. When the bollinger bands then move out of the ketlner channel the indicator will fire of a squeeze signal in either direction.

The concept of this is to capture any breakout moves that occur when volatility rises. I have never used this indicator but the concept does make alot of sense.

[ant]

Thanks James. I didn't know what was behind the TTM Squeeze. It does sound like a clever way of using BBs and the Keltner Channel.

[namstrader]

Instead of purchasing the squeeze indicator from Carter and Hubert, I have observed and traded the Bollinger band inside the Keltner channel. It alerts me to a nearing move in the direction of market internals and indicator divergences.

[ant]

Namstrader, I see what you mean (see chart below). By the way, attached is the Squeeze indicator re-created by other traders. Note that I have never used this indicator and cannot vouch for its accuracy.

[Soultrader]

Very nice Antonio. I am actually going to test this out. Do you know if this indicator was written in the same way as the TTM Squeeze Indicator?

[ant]

I compared it to the TTM Squeeze and did notice that it is very similar, but slightly difference. I haven't looked at the code so I don't know what is contributing to that.

[Soultrader]

Im going to test it out today. This is good for a trending market or a wide range day, so I will need to devise some setups that I can use with this indicator. Perhaps it is best used to confirm a setup instead of using the squeeze indicator as a first choice.

[Soultrader]

Here is the results of the squeeze indicator from today. Keep in mind that today was a pretty rangebound day consolidating between the weekly pivot and the S1 pivot zone. I think it will work better on a trend day. Perhaps it can give an early signal for a trend in play.