Bollinger Band Swing Trading Strategy

Bollinger Band Swing Trading Strategy

Fine-tune your swing trading strategy with the use of Bollinger Bands…

A Bollinger Band Swing Trading Strategy can help you improve your swing trading results. So in this short blog post I’ll share with you how I incorporate Bollinger Band analysis into my swing trading strategy. And my hope is…

After you read this post you’ll be able to use this Bollinger band swing trading strategy yourself to improve your own returns. Just keep in mind: While Bollinger bands can be very helpful for swing trading strategy, they are only one component of even the simple trading plan.

Now let’s get into it…

Why Bollinger Bands Help With Swing Trading Strategy:

Bollinger Bands can be helpful to your swing trading strategy because they are an objective technical measure of when a stock is overbought or oversold. And while Bollinger bands aren’t the definitive measure of when a stock will turn around, they can definitely indicate mean reversion. And that’s a big part of what swing trading strategy is all about, right?

Now keep in mind:

I am predominantly a long term investor who uses swing trading strategy to improve returns. So the following is applied to stocks that I have a longer-term bullish conviction on. You could use the same strategy (just inverted) if you were bearish on a stock. I just think it’s important you realize Bollinger Band Strategy works best when it’s combined with a fundamental position on a stock which gives you conviction. So…

Here’s how I use Bollinger Bands to improve my Swing Trading Strategy:

3 Ways to Use Bollinger Bands in Swing Trading:

(1) Sell at The Upper Bollinger Band: When stock prices reach the upper Bollinger Band, this is often a sign that they are overbought or becoming extended in the short term. To reduce draw-downs in my account and realize capital gains, I like to sell 1/4 or 1/3 of my stock position when it reaches the upper Bollinger band. Then I watch to see if the stock consolidates sideways or pulls back and time my next entry accordingly…

(2) Buy at The Lower Bollinger Band: When stock prices reach the lower Bollinger Band, this is often a sign that stocks are oversold or becoming extended to the downside. To compound gains I usually try to buy 1/4 or 1/3 positions in stocks when they are at the bottom of their Bollinger Band. I also usually look for Bollinger Bands to coincide with support or other oversold indicators. When stocks are at their bottom Bollinger Band and they are at strong support trend lines you can usually get a good entry for a short to medium-term swing trade.

(3) Watch “Price Character” at the Middle Bollinger Band: The middle Bollinger Band is actually the 20 period moving average. And while this middle Bollinger Band isn’t as helpful to swing trading strategy as the others, it does present interesting insight. That’s because the way price “reacts” to the 20 period moving average can help you understand the nature of any consolidation. If a stock is pulling back from the upper or lower Bollinger band and shoots right through the middle Bollinger band then it usually pays to wait for the stock to go the opposite Bollinger band. On the other hand, if the stock pauses at the 20 period moving average you might want to keep a close eye because it’s unlikely the stock will retrace to the lower Bollinger band. This isn’t a scientific measure but watching the “character” of the price action at the middle Bollinger Band can usually indicate where price is going to continue.

Now I know that’s a lot of information about Bollingers Bands. So if you’re having trouble picturing how this all works, just check out the quick video below:

Bollinger Band Swing Trading Strategy [VIDEO]:

Now that you know the main uses for Bollinger band strategy in swing trading, here is one more use case to keep in mind…

Swing Trading Strategy For Pinching Bollinger Bands:

While Bollinger bands are usually indicative of a short term top or bottom, they can also indicate price compression (reduced volatility). Typically when volatility is reducing and a stock is consolidating you will see the Bollinger bands start to pinch in. If the consolidation is coming after an uptrend, the Bollinger bands will slope up sharply. And if it’s after a downtrend they will slope down sharply. So…

What do pinching Bollinger bands mean for your swing trading strategy?

When Bollinger bands become pinched in very tight, it can indicate that price is coiled and the stock is about to explode, either higher or lower. While Bollinger bands don’t indicate direction ahead of time, they can let you know that something is about to happen. When combined with the rest of your swing trading strategy this is another important aspect of Bollinger Band trading tactics. Finally…

When Bollinger bands have pinched in for an extended period of time, it means the explosion in price (whether upwards or downwards) can be violent and extended. Overbought stocks can remain overbought for days or weeks on end when they are emerging from a consolidation. I know this sounds contrary to the advice above. But it’s is something you need to be on watch for as a swing trader because it can give another level of depth to help you understand if you should buy, sell or hold your stock.

So as you can see, there are numerous instance in which incorporating Bollinger bands into your swing trading strategy makes a lot of sense. So now let me ask you, do you use Bollinger Bands in your swing trading strategy?

Now Keep In Mind: Bollinger bands are only one technical indicator and by themselves they won’t give you the full picture. So if you’re still hungry for more information on how to improve your swing trading or investing, just sign up using the form below…

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