CMC Markets Singapore Harnessing Volatility
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Transcript of CMC Markets Singapore Harnessing Volatility
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8/13/2019 CMC Markets Singapore Harnessing Volatility
1/9
Harnessing Volatility with Bollinger Bands
THE CMC MARKETS TRADING SMART SERIES
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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
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3/9CMC Markets | Harnessing Volatility with Bollinger Bands 3
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.
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4/9CMC Markets | Harnessing Volatility with Bollinger Bands 4
CHART 2 Bollinger Bands adapt to changing market conditions.
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5/9CMC Markets | Harnessing Volatility with Bollinger Bands 5
CHART 3 Price movements outside the bands are statistically significant.
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6/9CMC Markets | Harnessing Volatility with Bollinger Bands 6
CHART 4 The beginnings of a trade setup.
CHART 5 Overlay the pattern onto the Bollinger Bands.
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7/9CMC Markets | Harnessing Volatility with Bollinger Bands 7
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.
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8/9CMC Markets | Harnessing Volatility with Bollinger Bands 8
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.
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8/13/2019 CMC Markets Singapore Harnessing Volatility
9/9 CMC Markets Singapore Pte. Ltd., Reg. No./UEN 200605050E. All rights reserved December 2011.
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