[BB New Series Episode 1] Do not believe the number "95.4%"—the trap of "go against the trend when BB is touched"
Pro Trade CoachMax is here.
From this time, we begin a new series about the Bollinger Bands (BB).
BB is a very famous technical indicator in the FX world, and one of the first concepts beginners learn is this.
「±2σ within the range, about95.4％ is contained」
Looking at this number, many people think it as follows.
「Then, if it reaches +2σ, I should sell」
「−2σ reaches, I should buy」
However, I believe this way of thinking is one of the causes that makes many traders suffer.
95.4％ is not the “reversal rate”
First of all, don’t misunderstand this here.95.4％ is only a theoretical statistical value indicating the probability of entering the ±2σ range.
「＋2σ or −2σ reaching a price does not mean that it will reverse with 95.4％ probability.
Nevertheless, this number has somehow transformed into an easy trading rule like “touch the band and it will reverse soon.” Therein lies a big pitfall.
When the market is in a strong trend, the price appears near +2σ or −2σ many times. In a strong market, the bands widen and you follow that movement. In other words, “touching the band” and “reversing” are entirely separate matters.
Looking at lines alone makes you miss market momentum
For example, suppose the price reaches +2σ. Then you decide to sell thinking it’s high. But if the entire band is moving upward and widening, what happens? The market may rise further from where you think it is “high.”
What you should look at then is not whether a single candlestick touched the band.
It’s about the overall state of the bands.
That is far more important.
BB is not merely a tool that displays buy/sell signals.It should be used as a tool to visually read the market state.
Graduate from “touch-and-trade”
Sell because it touched +2σ. Buy because it touched −2σ
What’s important is to ask yourself the following question first.
「What is the overall state of the current bands?」
Is it narrowing? Is it widening? Is it flat? Or is it tilted in one direction? Once you can see this,BB is no longer just a few lines; it becomes a powerful tool to think about what phase the market is in.
Next time, I will explain how to read this “market state” from Bollinger Bands. Before deciding “buy or sell,” there is something you should know.
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