BB, the correct way of usage - Part One
Like EMA, Bollinger Bands are famous indicators that can be used to analyze the market. We discussed the current usage of EMA in parts One, Two, and Three, and we will continue to do so. Now, let's talk about BB.
In ARZ Trading System, we have a specific rule for this indicator, to find the best spot to enter the market.
- BB settings: 20 period, 2 deviation.
BB meaning:
1. When its bands are converging, we are close to a breakout. We have to consider MC boxes and EMAs to analyze what direction it might break out.
2. When diverging, we are in a breakout. If price movement continues and still we see the bands diverging, we are still in breakout mode.
3. When bands are flat, we are in a ranging market.
In our system, the best place for entering into a reversal position is when at the same time, the price has touched MC (what is MC?) and BB levels, just as follows:
- The MC candle is shown. we expect the market to retrace after reaching the UTP level.
- After breaking the UTP level in candle #1, the price couldn't cross and close and retraced in #2 inside the UTP area. So, MC is still valid.
- From #2 to #3 we have no reason to trade upward.
- In #3 the price has touched both LTP level and BB. So, we look for a buy position.
- in #4 we analyze the market as a seller. Because the price has touched both the support of MC and BB.
- in #5 again we see a similar situation as #3, so we are buyers.
- in #6, the price couldn't cross and close after the breakout candle, so MC is still valid.
In ARZ Trading System, we have a specific rule for this indicator, to find the best spot to enter the market.
- BB settings: 20 period, 2 deviation.
BB meaning:
1. When its bands are converging, we are close to a breakout. We have to consider MC boxes and EMAs to analyze what direction it might break out.
2. When diverging, we are in a breakout. If price movement continues and still we see the bands diverging, we are still in breakout mode.
3. When bands are flat, we are in a ranging market.
In our system, the best place for entering into a reversal position is when at the same time, the price has touched MC (what is MC?) and BB levels, just as follows:
- The MC candle is shown. we expect the market to retrace after reaching the UTP level.
- After breaking the UTP level in candle #1, the price couldn't cross and close and retraced in #2 inside the UTP area. So, MC is still valid.
- From #2 to #3 we have no reason to trade upward.
- In #3 the price has touched both LTP level and BB. So, we look for a buy position.
- in #4 we analyze the market as a seller. Because the price has touched both the support of MC and BB.
- in #5 again we see a similar situation as #3, so we are buyers.
- in #6, the price couldn't cross and close after the breakout candle, so MC is still valid.
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