By the end of this video, you will have a better understanding of Bollinger Bands and how to use them to better time your entry points. All of your bands can be extremely helpful for giving us a different perspective on whether or not a stock is overbought or oversold. It allows us to measure volatility and when volatility is being squeezed, it allows us to catch breakouts. And of course, the only thing that I ask of you in return for this video is that you hit that ravishing like button and also subscribe for more short sweet simplified videos on how to trade the stock market.

Ok, so let's start by defining each of the bands of this indicator. The middle band is essentially a simple moving average. The upper band is two standard deviations above the simple moving average, and the bottom band is two standard deviations below the simple moving average. Now on thinkorswim I Just set this up.

If you go to System Preferences it's set to default most of the platforms that you're going to be using. If you add the Bollinger Band indicator, it's going to give you a 20-day simple moving average and a tea standard deviations. You can adjust that, but we're going to be going with the defaults for this. Okay, so now the Bollinger Band indicator is quite fascinating because it's based on this theory than 95% of price action tend to keep to two standard deviations of the average during a given time period.

And that's when they are in the upper end, they are overbought and when they are in the lower end, they are oversold. Now this allows you to get in that better entry points since you can measure which deviation you're trading within and when they break out of that band range. That is a sign of the irrational price action. And if you have a hard time following along what they need the terminology don't worry I'm going to be going through a ton of examples and it's going to reiterate as the video goes on.

But bands also allow us to measure volatility and help us foresee future volatility, which can be very helpful. For example, when bands become closer together, that means that there is less volatility and thus less room between standard deviations. And when they move farther apart, that means there is more volatility and thus more room between standard deviations. When a stock is forcing the Bollinger Bands apart, we know that volatility is increasing and they also help us predict future volatility.

Now the theory behind this is that be closer together they are or the more they are squeezed so to speak, the more overdue they are for new volatile. Thus, finding an entry point as volatility starts to break out can be won elevating factor after a volatility squeeze. But on the other hand, widening volatility can only last so long. So the theory is that the wider it gets, the more overdo it is to contract.

Okay, so let's dive into some of the examples to really beat this in. say we are looking to take an intraday position here into S Oly. Using the Bollinger Bands, we can identify the fact that we are trading above two standard deviations of the norm, even though we are close to fair value on the our side. The truth is that for this given time period based on volatility, at this point, it's simply trading on the higher end.

That means that if we take a position here, we are taking a position at a point where it is more expensive. Combining the Bollinger Bands with an uptrending pattern means that you can focus on taking positions when they are trading in the lower percentile and then simply sell out when they break out of the higher percentile. And if you haven't noticed, the Bollinger Bands pretty much just give us a different way of looking at the price action as compared to how on this channel we usually do traders. It's important to keep our eyes out for different styles of trading and different things to boost our consistency.

and the Bollinger Bands can be a good alternative where as we traditionally focus on the RSI for valuing our position, the Bollinger Bands focus more on using statistical Theory to measure price action. And the next thing they tell us as I mentioned earlier is how volatile a stock is. If we are looking at Kpti before the breakout, we see that the bands are trading quite tight. Tightening of the Bollinger Bands signifying lowering volatility and expanding of the Bollinger Bands signify increasing volatility.

Makes sense, just to reiterate. So we had a very tight trading range for much of the period leading up to this breakout and then boom. We started seeing the bands be forced apart as the stock price trended up and this may sound redundant, but this was again due to the fact that we had more volatility here than we had here. and the top and bottom bands expand when there's volatility.

So the other approach with Bollinger Bands would be simply buying in upon a breakout of positive volatility. And this is something that I see a lot a stock with short bands breaking out as a sign of volatility. And if you can pair this with other indications other elevating factors as I like to call them, it can be a powerful way to take advantage of volatility and catalyst that you are looking for a confirmation on. Again, a lot of trading is identifying a fundamental catalyst and then going to the market and finding some sort of technical confirmation.

Now, traditionally we like to use the first candlestick holding above the SMA line, but the Bollinger Bands. They offer a different alternative today and that is figuring out exactly where you are in the range. Of course, there also is an SMA line with the Bollinger Bands, but it works a little bit differently and it's configured a little bit differently. The point Of the Bollinger Bands, is to look to see where in the percentiles you are based on different standard deviations, using the SMA line as sort of the norm.

Okay, so what about Lab D? How can you use Bollinger Bands to better time your entry and exit points in Lab D? Well, if we can identify that Lab D is in a consistent up trending pattern, we can focus on getting in at a low percentile deviation and then hold from over buying until we return back to the SMA line. This is a completely different way of looking at the price action, but it can also be a quite powerful way when applied to the correct setups since the Bollinger Band measures percentiles within the standard deviation range. That means that in an Up training stock, we can simply buy in when it's in the lower percentile and then hold out until it's in the upper percentile. Now, we know that consistent up training stocks are more likely to consistently uptrend as compared to downtrend if all else was considered equal.

So the secret with the Bollinger Bands is finding consistently trending patterns and then buying in when they're in the lower percentile because that will boost your odds of success while minimizing your risk of the downside. Well, being the soft trading nerd that I Am I, do want to get a little bit more into the theory behind V Bollinger Bands and sort of like the idea behind it. And in order to really understand what is behind the scenes of the Bollinger Bands, you're going to need to understand this concept called statistical significance. If you are familiar with statistics or have taken a statistics class before, you should know that a measurement is considered statistically significant if it is above or below to set standard deviations of the norm.

Now depending on the study and what you're doing, sometimes they'll adjust how many standard deviations. but generally speaking to standard deviations is to go in factor and that's because 95 percent of data is going to fall between the two standard deviations. and when apply to the stock market, they're trying to say that 95 percent price action is going to fall between the two standard deviations. And that's two standard deviations below and two standard deviations above.

And then you have the middle which is the the data on average. So how the Bollinger Band does it is. the Bollinger Band deems the SMA line the 20-day SMA line that you see configured I think it's in blue. Yeah, it's in blue.

So the Bollinger Band deems that SMA line as the norm and the upper and lower bands represent deviations of that norm. Since the stock market is one irrational beast, this is a great way to figure out if we're trading in irrational territory. And if we do this, we can make the assumption that hey, if we're within two standard deviations of the norm, then we must be within the 95 percentile range. So when it breaks out either above or below these standard deviations or statistically significant, that's a significant move.

And since the stock market is one irrational beast, this is a great way to figure out if we're trading in irrational territory, as well as figuring out where we are in terms of operat vs.. downward potential so that we can maximize our gains and minimize our losses. Let's put this in a real-world perspective. So let's apply this to say children.

The Height of children. If you have 100 children and the average height for a child is 4 feet, then most of the children that you're studying are going to be within a standard deviation of that 4 foot range. We said that the average child is 4 feet tall. so we can assume the 95 percent of children in that study or within two standard deviations of that average, right? Because not every single child is going to be the exact average.

They're gonna be around the average. And let's say that each standard deviation is half a foot. So two standard deviations means that 95% of the children in that study are within 3 feet and 5 feet. And then the ones that are above 5 feet and the ones that are below 3 feet are considered statistically significant.

And those are the ones that are much much larger or smaller than the average. But the point is that the ones that are within the 2 standard deviation range those are the ones that are considered normal, but a child in the study, if they were akyuu feet tall, that wouldn't be considered normal. much like how a child that is 7 feet tall that's not going to be considered normal either. You know that there's something significantly different.

So this is the same idea with the Bollinger Band if something is pushing up or pushing down out of this day deviations range, and then that can likely be interpreted as either a massive change in direction or irrational price action. in which case, you can use that to your advantage. But moreover, it serves to also provide you inside into catalysts that are massively moving the price direction out of the standard deviation range. But the other beautiful thing about Bollinger Bands is they also help you figure out exactly where the volatility is.

Because standard deviations they don't stay constant, they expand and they contract and the wider apart they are be more deviation and volatility can only contract so much so you know that when it's contracted, if it starts breaking out then that could be a sign of new volatility that we can then trade off of. anyways. I Hope this video was useful. The Bollinger Bands offer a different perspective on the market and can be useful for a lot of different trading styles.

This is something that a lot of folks asked me to do. This is a video tutorial that a lot of folks asked me to do, and while Bollinger Bands aren't something that I personally focus on since there are a ton of other very useful indicators, it is something that I do see value in in terms of measuring volatility, finding breakouts, and overall boosting your consistency. Anyways, if you do have any questions, feel free to comment below or reach out to us. on the Zipp Trader circle Facebook group.

we also have a trading tutorials playlist. We have a discord chat and what else do we have? Oh, we have that ravishing like button Anyways, thanks for tuning in, have a great day folks and I'll see you in the next video.