Strategy based on Double Bollinger Bands

Many people trade on the basis of expert advice from advisory firms like TradeNexa. Only TradeNexa firms provide accurate Stock Option Tips and Option Trading Tips in form of buy or sell calls. Many people perform the technical analysis themselves and use the indicators like Bollinger Bands.

Bollinger Bands is Technical analytic tool that consists of three data points that simultaneously create an upper and lower trading channel. These channels are two standard deviations from the middle line. Bollinger Bands calculate the mid-term trend. The price fluctuations between the upper and lower bands calculate volatility and deviation from the twenty-day SMA (simple moving average).

In addition to the standard Bollinger bands types, whose settings are 20 periods and 2 standard deviations, the Double Bollinger Bands add on the 20 period, 1 standard deviation, hence it generates 4 zones. The two bands (zone) on the top are called the ‘up-trend zone’, while the two bands on the bottom are called ‘the down-trend zone’. If the currency pair has a strong up-trend, generally it will stay in the one-two band on the upside. If it is in a strong down-trend, it will be in the one-two zone on the downside.  Double Bollinger bands tells us that when a trend is enough strong to continue to enter new positions, although it has been going on for an extended time, even at historical highs / lows where there are no support or resistance points.

The Double Bollinger Bands consist of two sets of Bollinger bands. One set at the usual two standard deviation distance above and below the twenty periods SMA line in the middle.  And the other set plotted just one standard deviation above and below that central moving average.

The double Bollinger bands have a strong variation on the standard version since they explain more about the momentum and thus trend shows the strength, both in flat as well as strongly trending markets. Different from the standard Bollinger Bands, double Bollinger bands are extremely useful in strongly trending markets since they help us to better identify as to when a pair is in a trading range or whether a strong trend is possible to continue and it also shows the low risk entry and exits.

This is what the way to plot Double Bollinger Bands:-  At first, plot a standard set of Bollinger Bands. Using a typical charting package (i.e, going to your menu of technical indicators and just selecting the BBs along with the 2, 20 of its standard settings, which stand for two-standard deviations and a twenty-period SMA.  Repeat the process by again choosing BBs from your list of available indicators and change the settings from two-standard deviations to one- standard deviation.
A1 - The upper Bollinger Bands line that is 2 standard deviations away from line ‘C’, which is the 20-period SMA.
B1 - The upper Bollinger Bands line that is at 1 standard deviation space from the 20-period SMA.
B2 - The lower Bollinger Bands line that is1 standard deviation from the 20-period SMA.
A2 - The lower Bollinger Bands line that is 2 standard deviations from the 20-period SMA.
These bands spot three separate zones which provide the added information about the strength of a trend. The application result brings out a better idea of whether the price is likely to go on with its trend, or halt its trend and remain within a horizontal trading range, or reverse direction.


                                                A Chart illustrating the plotting of DBBs

There are four rules for employing Double Bollinger Bands:
1. Go short when price is even or below the sell zone of Double Bollinger Bands.
2. Go long when price is even or above the buy zone Double Bollinger Bands.
3. Do not venture to trade based on Double Bollinger Bands when price is between the buy and sell zones.
4. Minimize the risk by waiting till prices retrace to the cheaper end of the buy or sell zone.

A double Bollinger band is only one type of indicator which is widely used by experienced Forex traders. The common traders and investors use a combination of fundamental and technical analysis before placing their trades.  Long-term traders rely more towards the fundamentals since most fundamental factors take considerable time to fully use their influence following rules for using them. Short term traders who enter and exit the market within less than a few days need to be much more concentrated on technical indicators.

Using DBBs is one way for short term traders to determine how these forces are likely to influence short term price movements over coming days through technical indicators. By pursuing the rules on how to correctly view them, Double Bollinger Bands can be very practical for short-term traders.
TradeNexa, a leading Stock and commodity firm, plays a significant role giving proper light in this direction and bringing up precise and accurate Stock Options Tips , Option Trading Tips for Stock Market.

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