Bollinger Bands are a powerful technical indicator created by John Bollinger. The bands encapsulate the price movement of a stock, providing relative boundaries of highs and lows. The crux of the Bollinger Band indicator is based on a moving average that defines the intermediate-term "trend" based on the time frame you are viewing.To get more news about bollinger band, you can visit wikifx.com official website.

But how do we apply this indicator to trading and what are the strategies that will produce winning results?

In this post we'll provide you with a solid foundation on the bands, plus six trading strategies you can test to see which works best for your trading style.
Most stock charting applications use a 20-period moving average for the default settings. The upper and lower bands are then a measure of volatility to the upside and downside. They are calculated as two standard deviations from the middle band.

In essence, the Bollinger Band indicator was created to contain price the vast majority of the time. In fact, Investopedia claims that the bands actually contain the price 90% of the time [2].

If you are new to trading, you are going to lose money at some point. This process of losing money often leads to over-analysis. While technical analysis can identify things unseen on a ticker, it can also aid in our demise as traders.

In the old days, there was little to analyze. Therefore, you could tweak your system to a degree, but not in the way we can continually tweak and refine our trading approach today.

We make this point in regard to the settings of the bands. While the configuration is far simpler than many other indicators, it still provides you with the ability to run extensive optimization tests to try and squeeze out the last bit of juice from the stock.

The problem with this approach is that after you change the length to 19.9 (yes people will go to decimals), 35 and back down to 20; it still comes down to your ability to manage your money and book a profit.

Our strong advice to you is not to tweak the settings at all. It's better to stick with 20, as this is the value most traders are using to make their decisions, versus trying to look for a secret setting.
#1 STRATEGY - DOUBLE BOTTOMS
The first bottom of this formation tends to have substantial volume and a sharp price pullback that closes outside of the lower Bollinger Band. These types of moves typically lead to what is called an "automatic rally." The high of the automatic rally tends to serve as the first level of resistance in the base building process that occurs before the stock moves higher.

#2 STRATEGY - REVERSALS
Another simple, yet effective trading method is to fade stocks when they begin printing outside of the bands. We'll take this one step further and apply a little candlestick analysis to this strategy.

For example, instead of shorting a stock as it moves up through its upper band limit, wait to see how that stock performs. If the stock goes parabolic or gaps up and then closes near its low while near the outside of the bands, this is often a good indicator that the stock will correct on the near-term.
#3 STRATEGY - RIDING THE BANDS
The single biggest mistake that many Bollinger Band novices make is that they sell the stock when the price touches the upper band or buy when it reaches the lower band.

Bollinger himself stated a touch of the upper band or lower band does not constitute a buy or sell signal. In his book, John states, "During an advance, walking the band is characterized by a series of tags of the upper band, usually accompanied by a number of days on which price closes outside of the band."
#4 STRATEGY - BOLLINGER BAND SQUEEZE

John created an indicator known as the band width. This Bollinger Band width formula is simply (Upper Bollinger Band Value - Lower Bollinger Band Value) / Middle Bollinger Band Value (Simple moving average).

The idea, using daily charts, is that when the indicator reaches its lowest level in 6 months, you can expect the volatility to increase. This goes back to the tightening of the bands that I mentioned above. This squeezing action of the Bollinger Band indicator often foreshadows a big move.