CMC Markets Singapore Harnessing Volatility

8/13/2019 CMC Markets Singapore Harnessing Volatility

1/9

Harnessing Volatility with Bollinger Bands

THE CMC MARKETS TRADING SMART SERIES


2/9CMC Markets | Harnessing Volatility with Bollinger Bands 2

As a trader, you need to have a good

understanding of the nature of marketvolatility and the way it impacts your

positions. One of the most popular

and one of the most reliable tools that

traders have at their disposal is Bollinger

Bands, developed in the 1980s and

named after its creator, John Bollinger.

Proudly No. 1 for CFD education

Results from Investment Trends September 2010 Singapore

CFD Report, based on ratings given by 8,900 investors



In chart 1, you can see a distribution, or bell, curve. This tells you

that based on the number of observations that have been taken

(for example, index prices over the last 20 days), 95% will occur

within +/2 standard deviations of the moving average.

-4.0 -2.0 0.0 2.0 4.0

68 95 99

CHART 1 Two standard deviations covers 95% of expected distribution.



CHART 2 Bollinger Bands adapt to changing market conditions.



CHART 3 Price movements outside the bands are statistically significant.



CHART 4 The beginnings of a trade setup.

CHART 5 Overlay the pattern onto the Bollinger Bands.



Buy

Second trough in the W. Note that the

candle low is inside the lower BollingerBand and surrounded by two higher lows.

CHART 6 The formation of the second trough is the key signal.

CHART 7 The same pattern reversed can give a good short trade.



1st stop2nd stop

3rd stop

4th stop

Final stop

CHART 8 Place your stop at the first point you know a reversal has occurred.

Bollinger Bands and stop loss

As with any trade you make, you should have a very clear picture of

where you place your stop loss. As something of a side note, you

will likely find all of your trading becomes much more relaxing when

you take on a sensible stop loss strategy, because you have then

quantified your risk. Trading can be stressful for traders who have

no plan as to when they will exit a losing trade. Sensible traders will

know up front where they will place their stop and how much they

will have at risk before they even enter the trade rather than trying

to make their strategy up on the fly.


9/9 CMC Markets Singapore Pte. Ltd., Reg. No./UEN 200605050E. All rights reserved December 2011.

50 Raffles Place #14-06

Singapore Land Tower

Singapore 048623

T 1800 559 6000 (local)

T +65 6559 6000 (international)

F +65 6559 6099

E [email protected]

cmcmarkets.com.sg

The infor mation contained herein / pr esentation (the Information) is p rovided strictly for infor mational purpos es only and mus t no t be reprodu ced, distribute d or given to anyperson without the express permission of CMC Markets Singapore Pte. Ltd. (CMC Markets).

The Information is not to be regard ed as an o ffer, a solici tation o r an invi tation to deal in any investment produc t or an ad vice or a recommendation with respe ct to any investment

product, and does not have regard to the specific investment objectives, financial situation and particular needs of any specific person.

Contracts for Difference and leveraged foreign exchange trading involve the risk of sustaining substantial losses and are not suitable for all investors. You should independently con-

sider the Information in the light of your investment objectives, financial situation and particular needs and, where necessary, consult an independent financial adviser before dealing

in any investment product. Risk warning/disclosures and other important information are available at our website: www.cmcmarkets.com.sg or by contacting us at + (65) 6559 6000.

CMC Markets does not warrant the accuracy, completeness, suitability, currency or reliability of the Information. CMC Markets accepts no liability for loss whatsoever arising from or

in connection with the use of or reliance on the Information. It should not be assumed that any product evaluation or analysis techniques presented herein, if relied upon, will guar-

antee profits or gains or will not lead to losses. Any graph, chart or any device set out or referred to herein / presentation possesses inherent limitations and practical difficulties with

respect to its use, and cannot, in and of itself, be used to assist any person to determine and/or to decide which investment product to buy or sell, or when to buy or sell them. Past

performance is not necessarily indicative of future per formance, result or trend.

CMC Markets does not and shall not be deemed, and accepts no obligation, to provide advice or recommendation of any sort in relation to any investment product. CMC Markets

may or may have expressed views different from the Information and all views expressed are subject to change without notice. CMC Markets reserves the right to act upon or use the

Information at any time, including before its publication herein.

CMC Markets Singapore Pte. Ltd.

Documents

CMC Markets Singapore Harnessing Volatility