Another tool that we can use to differentiate between trending and ranging market are Bollinger Bands. Remember those?
Why Bollinger Bands, you might ask. And I will explain everything.
You see, trending market is not exactly common or normal, for that matter. It is not the well-known, but for the most part (about 70-80 percent of the time) markets are ranging.
So. One might say that a trending market is a deviation. And what is the best trading tool to measure deviations? That’s right! Bollinger Bonds! I knew you would get it right!
Here is how it works.
You take two bands with deviations of 1 and 2 and you place them onto a graph. That is going to help you see the different price zones: the buy zone, the sell zone, and the no-man’s land-zone.
The sell zone is the area between two bottom bands of the standard deviation 1 and 2.
The buy zone is the area between the two top bands of the standard deviation 1 and 2.
No-man’s-land is the zone where the price doesn’t really have a definite direction.
And in the situation like this the trends can be seen:
In the sell zone the market downtrends.
In the buy zone the market uptrends.
And that is it – easy as cake.