Bollinger bands are an integral part of just about every charting system I have ever seen but many traders are unfamiliar with how to use them. In this lesson we will cover the basics of Bollinger bands and one particular technique which I have found to be very reliable.

History

Bollinger Bands were invented by John Bollinger as a means of determining what could be considered as high or low around a give price.

The bands are plotted at a standard deviation (statistical term for measuring volatility) around a moving average. Typically the standard deviation used is 2.

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Fear and Greed are two of the emotions that traders and investors know best. You have often heard that these are the emotions that drive the market. The Greed of missing out on the market going higher causes people to buy in at the top of a run thus keeping it going higher and higher until there are no more fools to buy.

The fear of the pain of losing causes people to cut their losses and sell at the bottom thus causing the drop to continue to drop. The pundits explain this on CNBC on a regular basis.

This is the driving force behind the market cycles. If the market was 100% efficient and companies were valued at their fair value then there would be no traders and we would all be investors enjoying the returns of an expanding or receding economy. The professional trader takes advantage of this and capitalizes on the emotions of others.

So how do we become that professional trader when we have these strong emotions of Fear and Greed pulling at us every day?

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