Bollinger Bands: Bollinger Bands were mainly designed to operate in a sideways range. In a trend, they can be misleading. There are ways to use these in a trend, but they are advanced and can still mislead at times. The most effective way to use them is to buy (green box) when the stock price is outside, at or near the bottom Bollinger Band and the price breaks upward. (Notice you can have other signals help to confirm this such as the RSI or in this case the Slow Stochastics). Sell (red box) when the stock is outside, at or near the top Bollinger Band once the price breaks downward.
When a stock is strongly trending, dont bother plotting Bollinger Bands onto the stock chart. Only plot the indicators that work best in the current condition (whether trending or sideways). Leave off all others that arent applicable at the time. Also, dont put on too many indicators. Two to three indicators would be the maximum youd want to use. Many times, you may find the need for less.
The most common period used for Bollinger Bands are 20,2. The 20 is the moving average length in the middle while the 2 stands for two deviations away from the Bollinger Band on either side of the moving average.
To recap: In a trending stock, only use trend lines, moving averages and MACD. MACD buy signals should only be used in an up trend and MACD sell signals should only be used in a down trend (its always fine to use volume in any type of market).
In a sideways range, only use support/resistance, RSI, Slow Stochastics, Bollinger Bands and both MACD buy and sell signals.
Most commonly, analysis is done on longer-term charts such as a daily chart. This is where each candle or bar will equal one days worth of data. Many traders will plot a chart that goes back anywhere from 6 months to 1 year on the daily chart (at least). Always go back as far as you need to, in order to see the beginning of the current trend and previous areas of support/resistance. Keep in mind that you can always zoom in later to a smaller time frame, but at least youll have more data that you can see at first.
Shorter-term traders could even use smaller time frames. However, do realize that the smaller the time frame, the less accurate the technical indicator will be. This is because there isnt enough data offered on the chart to put through the formulations that comprise the indicator to give it an accurate reading. This is the mistake of many novices. Dont fall prey to this. Even when trading on a shorter time frame, trade inline with the daily charts direction/signals.
