How to use Bollinger Bands for Day Trading: Intraday Strategy

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 Intraday trading is not only challenging but also very risky and highly rewarding for traders. But if you are using the right technical indicators while performing the technical analysis, precisely identifying the trend and finding the best stock with the right level of entering and exiting into the trade position for intraday your trading strategy can be successful. Hence choosing the right technical indicator for intraday is another challenge for the traders.

In TradingView you can find number of indicators based on pivot points to EMA that you can use for intraday trading. But here we will talk of among the best and most widely used for day trading. We will today discuss about the use of Bollinger bands and how a trader can use it for intraday with the best settings and strategy.

What are Bollinger Bands in Trading?

The Bollinger bands are the combination of three bands and the expansion and contraction of these bands reflects the volatility in the underlying security. When the Bollinger Bands expands and moves away from each other it shows the volatility is high in the market.

Also Read: How to Trade in High Volatile Market: Best Trading Strategies

On the other hand, contraction in the Bollinger Bands indicates that the volatility has been lowered. Standard deviation is used to gauge volatility in an underlying; so, the bands move according to the variations in the volatility levels. But in trading, Bollinger Bands is a quite helpful tool; if used with the correct strategy, you can even utilize it for intraday trading.

Using Bollinger Bands for Day Trading

If you understand the relevance of this indicator since the Bollinger band continuously expanding and contracting to indicate the degree of the volatility, then you can use it in day trading or intraday trading. This volatility factor might help you decide whether to buy or sell in specified market conditions for intraday trading.

Also Read: How to Select Stocks for Intraday: 10 Tips to Pick Best Stocks

The Bollinger bands can be utilized as the support and resistance levels, making it easy to decide when to take entry and exit positions in your trading strategy. To use the Bollinger Bands for intraday trading, though, you must adjust the settings and trade under specific strategies. So, let’s find out how to use or apply this signal more efficiently in intraday to achieve the greatest outcomes.

How to use Bollinger Bands for Day Trading or Intraday?

For intraday trading, you need a technical indicator that gives support to your judgement on the the trend of stock for the day and the best probable entry and exit points. One can get such indication from the bollinger band expansion and contraction. Still, combining the Bollinger band with additional technical indicators will provide you superior trading insights.

Bollinger Bands Intraday Settings

The Bollinger bands are calculated based on the moving averages and 20 days simple moving average is considered. With the help of this moving average, the standard deviation is calculated to find out the value of the upper band and lower band in the Bollinger.

Also Read: How To Use Best Moving Averages for Intraday or Day Trading

The value of the standard deviation is chosen as per the timeframe of your trading strategy. Here you can tune the Bollinger band settings for intraday trading. However, for swing trading, the moving average is set for longer time frame at 50 and 200. While the standard deviation for both these trading strategies is set at 2.5 to get a medium-term view.

For short-term trading strategies, you have to set both moving averages and standard deviations at the lower levels. For scalping, the moving average is taken for 9–10 days and the standard deviation is set at 1.5. And for the day trading, you need to set the moving average at 20 and the standard deviation is considered at 2 for better results.

Bollinger Bands Intraday Trading Strategy

Now after tuning your Bollinger band values, you have to choose the right trading strategy that suits you from the intraday trading point of view. Using the Bollinger bands for intraday trading you have to follow the rules and principles that work for intraday. In day trading you have to consider various things while using the Bollinger band to perform the technical analysis and use the power of this indicator for following strategies.

Also Read: How to Do Intraday Trading: Best Stocks, Charts & Strategies

Using the Volatility

The three bands in the Bollinger bands give the overview of the volatility in the market or price of individual stock. When the bands expand the volatility is high, while the contraction of the bands means the market is less volatile in nature. You can use these bands to understand the current sentiment and sensitivity of the price movement of the market.

Also Read: How to Use Implied Volatility in Options Trading: Strategies

Breakouts and Breakdowns

The movement of a market or stock price keeps moving around or beyond these bands. When the price crosses or surges through the upper band, it is an indication of potential breakouts, giving the buying opportunity for the traders looking to go long in intraday.

Also Read: What is Breakout & Breakdown How to Identify Breakout in Stocks

On the other hand, when the price drops and breaks down below the lower bands, it is a type of retracement giving the signal of not entering into any long trade position, instead going for the short selling and taking this trading opportunity for the intraday trading.

Using the Trend Following

Day traders can use Bollinger bands as trend following indicator. In this strategy, you have to go long when other traders are buying and go short when other traders go for short-selling. This is like making hay while the sun shines.

Also Read: How to Find Trending Stocks for Intraday Trading: Ten Rules

In this trend-following trading strategy, you have to keep an eye on the upper and middle while following the uptrend and keep watching the lower and middle band, while following the downtrend. Here the trading idea is price moves with the Bollinger Bands.

Squeezing of Bollinger Bands

Apart from giving the signal of low volatility in the market, when Bollinger bands squeeze, it also gives the signal of breakout in either direction. This means the price cool downs, trading activities or volume is less, and you should wait for the next signal before entering into a day trading position. When there are significant activities, you can enter into trade.

Using the Mean Revert

Bollinger bands keep contracting or expanding depending on the different market conditions. Here you can check the swing of bands if there is extreme fluctuation with the anticipation of moving back to the central bands or central moving average. Here you can make trade decisions for day trading but it will work when the volatility in the market is high

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