Basically the opposite of "Playing the Bands" and betting on reversion to the mean is playing Bollinger Band breakouts.

Breakouts occur after a period of consolidation, when price closes outside of the Bollinger Bands. Other indicators such as support and resistance lines see: A trader might buy when price breaks above the upper Bollinger Band after a period of price consolidation.

Trade using Bollinger Bands

Other confirming indicators might likely be used by the trader, such looking for resistance to be broken; this is illustrated in the chart above of Wal-Mart stock. Similarly, a trader might sell when price breaks below the lower Bollinger Band.

A trader might use other confirming indicators as well, such as a support line being broken; this is shown in the example above of Wal-Mart stock breaking below support.

Bollinger Bands can also be used to determine the direction and the strength of the trend.

How to Use Bollinger Bands - etygivusyx.web.fc2.com

The reverse would be true during a downtrend, where prices would be in the lower half of the Bollinger Band and the period moving average would act as downward resistance. Bollinger Bands adapt to volatility and thus are useful to options traders, specifically volatility traders.

The next page describes how traders might use Bollinger Bands to make volatility-based options trades. The information above is for informational and entertainment purposes only and does not constitute trading advice or a solicitation to buy or sell any stock, option, future, commodity, or forex product. Past performance is not necessarily an indication of future performance.

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