How Do I Create a Trading Strategy with Bollinger Bands® and the MACD?
Technical traders use many indicators to develop trading strategies. Many of these tools can also help ordinary investors. With a little basic knowledge, you can develop a profitable trading strategy using indicators such as Bollinger Bands and the moving average convergence divergence (MACD).
Bollinger Bands, developed by technical analyst and trader John Bollinger, are a set of bands surrounding a security’s moving average that show standard deviations. For a stock that typically fluctuates within a set range for long periods of time, by creating a rectangular pattern on a chart, you can use Bollinger Bands to set up profitable trades.
The buy and hold method offers little profit on securities that move sideways. However, by buying at or near the lower Bollinger Band and setting limit orders to sell at or near the upper band, you can capitalize on price swings. This trading strategy is called swing trading. Customize your level of risk with this strategy by adjusting the Bollinger Band settings to a lower standard deviation with one instead of the standard two.
The MACD is typically used to reveal whether a security is overbought or oversold, which typically leads traders to adopt strategies that factor in an upcoming trend reversal. A popular trading strategy that utilizes the power of the MACD is trade differences. When you see new highs in the price of the security but not on the MACD, sell your long positions or enter short positions, as this indicates that the momentum behind the higher prices is waning and prices will soon come down. adjust.