It’s my favorite path – the Bollinger Bands. It is quite accurate in catching reversals assuming the market is orderly (no shocks).

It’s like driving on a highway: right lane, passing lane, turn… When market is relatively quiet, the path is not chaotic and you can stay in it. Real action starts when unexpected happens! The less expected the more fun.

Is there a way to prepare as a trader for “unexpected”? I think there is, however limited. Hikers that undertake long trips in wilderness train in reading maps, natural markers, sky, weather etc. Even when they wander off a path they would be prepared to look for an alternate route.

What is there for traders? Charts, emotional level at CNBC and alike, international news, Fed talk and more – observation of the interdependencies between the market and those, with time, helps with faster decision making while trading.

This is where I find the Bollinger Bands helping define the path while I still keep my eyes open on emotions, news etc.

Let’s look at this hourly chart:

A, B, C, D – no real action – just slow movement, no trade for me

E – support level from the daily chart

F – some action outside of Bollinger Band! (a possible next step would be pull into the BB and move up or a second leg down)

G – drop below the support from the daily chart and finding support in the Bollinger Band – that’s a promise of a bounce to test the resistance (previous support level from daily chart – high probability)

H – the test! And stuck at the upper BB

How to know the entry/exit? Additional indicators may help.

You may ask what chart is that. That was XME last 10 days hourly chart

In my next blog I will add one more indicator and revisit the “walk”.

Eva