Daytrading with Bollinger Bands

10/12/2011 1:30 pm EST


Markus Heitkoetter

Author, Educator, Trader, and CEO, Rockwell Trading Services, LLC

Like many traders, Markus Heitkoetter relies on the ever-popular Bollinger bands, but explains how the bands must be adjusted to work in shorter time periods and for daytrading.

You’ve probably heard about using Bollinger bands in your trading; maybe you use them now as an everyday tool.

Our guest today is Markus Heitkoetter, and he uses them in a little bit different way. So, Markus, talk about how you use Bollinger bands.

Well, first of all, I’m a daytrader, and as a daytrader, you have to use different settings on the Bollinger bands. 

See, the standard settings for the Bollinger bands are anywhere between 18, 20, or 21 for the moving average, and then you have two (2) for the standard deviation. 

Now, that’s perfect if you are trading on daily charts, but if you are dropping down to an intraday chart, John Bollinger himself suggests that you use the setting of nine to 12 for the moving average. I’ve been using a setting of 12 for many years now, and I’m very happy with the results that I’m achieving there.

Do you use them the same way that most traders do, with the low bar and the high bar, that kind of arrangement in trading within that?

No, I actually use them to identify trends.

You’re absolutely right; most traders use them as a trend-fading indicator, so they’re looking for a close outside of the Bollinger band, and since we have 98% of the closes inside the Bollinger bands, they try to fade the move and hope that prices are going back into the Bollinger bands. 

However, the way I use Bollinger bands is to identify trends. You’ll notice that in a strong uptrend, the upper Bollinger band is nicely pointing up in a 45-degree angle or more, and prices are constantly touching the upper Bollinger band. So it’s like a trend line above the prices.

So how do you know when, then, to buy or sell, based on what you’re using them for?

Well, Bollinger bands are just one indicator, and I like to confirm it with a second or third indicator, but I definitely wait until the Bollinger band is nicely pointing up and prices are touching the Bollinger band. 

I also know when the move will be over because you can clearly see that then the Bollinger bands are curling in, going flat, and this is when you know that a move is over…at least temporarily. So this is when you start taking profits, at least on part of your position, or maybe getting out of the position altogether. 

So you mentioned using intraday charts. Do you look at them on the longer-term charts as well? Do you identify longer-term trends?

No, I haven’t been holding a position overnight for many years now, because it just makes me nervous. The way the markets react these days to news all over the world, you might wake up the next morning and see yourself upside down in a position, so I like to control my risk by being quickly in and out of a trade, and this is what I do as a daytrader.

Well, Markus, I know you’re a fan of range bars. So you use Bollinger bands in connection with range bars on these intraday charts?

Absolutely. And this is where you get a really clear picture of the trends. You can clearly see when a trend is starting and also when a trend is over.

See video: Gain an Edge Using Range Bars

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