Bollinger Bands (BB) - Rule 4

Judging the Price with its approach towards BB

95% of all traders never go beyond their first trial with BB & never discover the true power that BB has to offer.

Funny thing about BB is that the reversal and the continuation set-ups are identical. In my opinion this is what frustrates most traders and this is why they never make it with BB. They have a hard time with the fact that they misread whether a continuation or reversal set-up is forming and they more often than not get on the wrong side of the trade.

Now, after going through the last 3 rules, go for this one.. With this we can decide, whether to sit in any trade for more Profits or get out with BB as exit !!

Observe how the bands react to Approaching Price Action.. The key to your falling in love with BB is careful observation of how the bands react to approaching price action. "Both bands" not just the one being approached..

We'll use Bullish reversal's and continuations for this example in the Nifty Daily Chart and the opposite is true for bearish reversals or continuations. The points are marked by numbers in Picture. Ready by looking at the graph for better understanding-

1.) Price approaches the UBB and the UBB goes up and the LBB is flat or moving up slightly. Continuation - Price will likely continue up slowly for a time.

2.) Price approaches the UBB and the UBB goes up and the LBB goes down. Continuation - Price will likely move up fast and furious. This is the best continuation pattern for the bands. This is a rapid expansion of volatility. You will experience "fake out's" sometimes but most of the time this set-up will produce some good profits when executed properly.

3.) Price approaches the UBB and the UBB and LBB remains flat. Reversal - Likely a sharp reversal to the lower band. Because both bands are flat this will likely be short lived.

4.) Price approaches the UBB and the UBB and LBB both go down. - Reversal - This is likely to result in a reversal but keep in mind price will likely only make it to the mean, the 20 MA with both bands heading down like this. This is a rare occurrence and is typical of a bigger market swing. A transition from Bullish to Bearish conditions.

Now, pull up 10 ~ 20 charts and spend some time observing how the bands react to approaching price action. My guess is when your done you'll likely take BB out on her long overdue second date..  which can change your trading..