Bonding with the Bands: Bollinger Band Secrets [Part 2]

Welcome back to the second part of our video series on Bollinger Bands and simple trading strategies! In our previous video, we explored the basics of Bollinger Bands and learned about a straightforward yet effective trading strategy to optimize profits and minimize risks. In today’s continuation, we will delve into two additional strategies that can enhance your trading experience. Whether you’re a beginner or an experienced trader, we hope you find these insights valuable. So let’s dive into today’s video

Strategy 2 – Walk the Bands

One of the fascinating aspects of Bollinger Bands is that they can be utilized not only in sideways markets but also in trending markets. In this section, we will discuss the “Walk the Bands” strategy, which takes advantage of price movements hugging the upper and lower bands during trending markets.

Understanding the “Walk the Bands” Strategy

• The concept: While prices generally revert to the mean after tagging the upper or lower band, there are instances where prices tend to “hug” the bands during uptrends or downtrends.
• Why it works: This behavior occurs primarily in trending markets, making it essential to have a strategy that aligns with these trends.
• How to execute the strategy:
• Filter 1: Look for the stock closing above/below the upper Bollinger Band by more than 50% with a strong green/red candle.
• Filter 2: Utilize the Relative Strength Index (RSI) as an additional filter to gauge the strength of the trend. An RSI level above 60 indicates a strong uptrend, while an RSI level below 40 suggests a strong downtrend.
• Important note: Avoid buying in an overbought area (RSI > 75 in an uptrend) or selling in an oversold area (RSI < 25 in a downtrend).

Visual Representation of the Strategy

Tag of the upper band & RSI > 60

  (Tag of upper BB & RSI>60)

(Tag of upper BB & RSI>60 – the outcome)
Tag of the lower Band & RSI < 40 –

(Tag of Lower Band & RSI, 40)

(Tag of lower band & RSI < 40 – Outcome)

Strategy 3 – Play the Squeeze

In this section, we will explore another simple yet effective strategy involving Bollinger Bands, known as “Playing the Squeeze.” This strategy takes advantage of periods of low volatility followed by high volatility, as reflected by the Bollinger Bands.

Understanding the “Play the Squeeze” Strategy

The concept: The squeeze occurs when the upper and lower bands come close together, indicating a contraction in volatility.

Why it works: A period of low volatility is often followed by high volatility, resulting in significant price movements.

How to execute the strategy

• Trade in the direction of a breakout: If the first candle closes above the upper Bollinger Band by more than 50% after a squeeze, it indicates a potential uptrend. Conversely, if the candle closes below the lower Bollinger Band by more than 50%, it suggests a potential downtrend.
• Options trading approach: Options traders often use the squeeze as a signal to buy straddles or strangles in low implied volatility environments, profiting from the expected breakout or breakdown.

Visual Representation of the Strategy:

[Squeeze followed by Breakout]

[Squeeze followed by Breakout – Outcome]

[Squeeze followed by Breakdown]

[ Squeeze followed by Breakdown – Outcome]

Conclusion

In this blog post, we explored two additional strategies to enhance your trading experience using Bollinger Bands. The “Walk the Bands” strategy allows you to ride the trend in trending markets, while the “Play the Squeeze” strategy takes advantage of periods of low volatility followed by high volatility.

Remember, Bollinger Bands are powerful indicators that can significantly improve your trading outcomes when used with the right discipline, risk management, and money management rules. We hope these strategies have provided you with valuable insights into the versatility of Bollinger Bands.
You can watch the complete video on Bollinger Band Strategies (Part 2) below:

For a more detailed and comprehensive understanding of Bollinger Bands, we highly recommend reading “Bollinger on Bollinger Bands” by John Bollinger himself. If you haven’t already, be sure to watch Part 1 of our series, which lays the foundation for the rest of the videos.