Here's an Quick Way to EASILY Identify
the Beginning AND the End Of A Trend and
Know EXACTLY When To Buy and When To Sell
Using Only ONE Indicator in the Next 5 Minutes or Less
One of the most important skills of a trader is to accurately identify the beginning and the end of a trend.
After all, the easiest way to make money with trading is following the trend;
You BUY when the market is going up, and you SELL when the market is going down.
In the next 5 minutes I will show you an EASY way to identify the beginning and the end of a trend using my favorite indicator: BOLLINGER BANDS.
Way back in the 90s I used fundamental analysis to try and predict the market. Long story short, it didn’t work for me.
Since the mid 90s I have been using technical analysis in my trading. When using technical analysis, there are two different approaches:
- Chart Patterns and
Examples of chart patterns are flags, pennants, triangles, double bottoms and tops, etc. Candlestick formations are chart patterns, too.
Examples of indicators are Moving Averages, Bollinger Bands, MACD, RSI, etc.
So which approach is “better”?
Should you use chart patterns or indicators to identify the direction of the market?
Easy answer: Use the approach that works for YOU.
I personally use indicators. I like the black-and-white approach of indicators.
As an example, the RSI is either above 70 or it is not. There’s no grey area.
I openly admit that I struggle identifying chart patterns while they are forming.
Don’t get me wrong:
I am an expert showing you every single chart pattern there is at the end of the day. But I can’t identify them with certainty while they are forming. But hey, I can’t ride a bicycle either, so maybe there’s something fundamentally wrong with me 😉
Using Indicators To Identify The Direction Of The Market
In my own trading I use THREE (3) INDICATORS to determined the direction of the market and trade the trend.
Today we will talk about the my favorite indicator – Bollinger Bands.
Bollinger Bands are a fascinating concept. They are available in EVERY charting software.
Note: If your charting software does NOT allow you to plot Bollinger Bands on your charts, it’s time to switch to a different software provider. Let me know if you need help finding a powerful charting software platform
Back to Bollinger Bands:
Bollinger Bands consist of a CENTERLINE, which is a simple moving average, and two standard deviations. One above the centerline and one below. These are called the UPPER BOLLINGER BAND and the LOWER BOLLINGER BAND.
I like to use a setting of 12 for the moving average and a setting of 2 for the standard deviation.
And here’s how to use Bollinger Bands to identify and trade the trend:
In an uptrend you will see that the Upper Bollinger Band in pointing up in a nice 45 degree angle and prices are touching the Upper Bollinger Band. The Upper Bollinger Band acts like a trendline ABOVE the prices.
So how do you know when an uptrend is over?
The uptrend is over as soon as the Upper Bollinger Band flattens or turns around.
In a downtrend you will see that the Lower Bollinger Band in pointing down in a nice 45 degree angle and prices are touching the Lower Bollinger Band. The Lower Bollinger Band acts like a trendline BELOW the prices.
And the downtrend is over when the Lower Bollinger Band flattens or turns around.
Try it out for yourself!
- Take a look at the chart below.
Look at the current value of the Upper and Lower Bollinger Bands.
Based on the definition that I gave you above, what is the market doing right now?
Is it in an uptrend or in a downtrend?
- Feel free to enter another symbol, e.g. AAPL
Can you see how the Bollinger Bands are showing you the trend?
You shouldn’t have ANY difficulty to determine whether a market is going up, down or sideways based on this simple definition.
If you do have problems, let me know and I’ll be happy to help.
Keep in mind that this is NOT a trading strategy in itself! It’s just a way to determine the direction of the market and identify a trend.
If you would like a fully disclosed trading strategy with all the EXACT rules when to enter and when to exit, just click on the button below.