All price-based indicators are just another way of showing price action. You don't really "need" any of them. However, they can be useful if you know how to read them. You can't just apply a simple formula to Bollinger Bands and say something like: "When the market breaks the upper or lower band the market is said to be in extremes and should return within the bands". That's only true in choppy conditions. In trending conditions the price will track along the upper/lower edge of the outer band and this fading strategy will get you killed. Just like a moving average crossover will work great in a trending market, but will get you chopped up in a sideways consolidation. You have to know how to use each indicator, just like knowing how to read price action. If you try to apply simple rules to any indicator expecting it to always provide you with profits under any market conditions, you will be disappointed.
If you know how to read something, it is not useless. Every indicator ever written is useful at some points, and works well in some market conditions. None of them work 100% in all conditions. The trick to successful trading is identifying the prevailing market condition first and then following the appropriate set of indicators, or just trading the price action in the appropriate way (which is essentially the same thing). The real key to profits lies in identifying chop vs trend using your own discretion.
That is a way too oversimplified approach to bands. What the band can do is let you see an over extension and allow you to sit and wait for the price action to come back in a little and then enter at a more comfortable level. It allows you not feel like you need to chase. Set up some boll's witha 20 day MA and just start cycling through the indexes, stocks mini's whatever it is and you'll immediately start see patterns. Use a 1 minute but its especially useful with a 5 minute.
One of two methods I day trade five minute ES uses BB. I only trade with the trend and BB allow for deep retracements. But entry method is only small factor of a method, managing the trade accounts for most of a good method. I use RSI extremes to stop me from taking trend trades, once entered, I use so many minutes or so many tics to get to breakeven stop, certain rules for trend change, so many trades per same trend, divergence in volume may tighten stops. Different time of day offers different profit targets.
John Carter from TradeTheMarkets.com uses Bollinger Bands extensively in day trading the index futures. However, he uses them in combination with Keltner channels. Basically, when the BBs narrow due to low volatility and squeeze inside the typically narrower Keltner Channels, he calls this a "squeeze". Then when volatility increases, the BBs widen and go outside of the Keltner channels, indicating a possible volatility breakout move in the direction of a momentum histogram indicator. He uses this in daytrading the ES using a 512 tick chart, on an hourly chart for currencies and on many other time frames. He charges for this indicator, but you can download a similar version from the TradeStation forum called the BBSqueeze or you can simply put BBs, Keltner channels and a momentum indicator on your charts. Here is a sample free video he sends out every night. He always talks about squeezes that are present in various markets and shows his squeeze indicator on his charts: http://clicks.aweber.com/y/ct/?l=EqjEZ&m=1bLty_bNttin5r&b=DXAdL.Pce_5I0IHCaiFXGQ Marcus Heitkoetter also uses BBs in a similar way, but in conjunction with MACD rather than Keltner channels to daytrade the ES. Here is a free video where he describes his method after about 20-30 minutes into the recording: http://genesis.na3.acrobat.com/p28075500/ Bollinger Bands provide a lot of helpful information. If you are attracted to BBs, you cannot go wrong getting information from the source--Bollinger on Bollinger Bands: http://www.amazon.com/Bollinger-Ban...=sr_1_1?ie=UTF8&s=books&qid=1251436212&sr=1-1
It allows you not feel like you need to chase. You wont know its an over extension until after the fact. Ya it might be, but then your sitting on your hands and watching as the stock takes off without you with little to no pullback in sight. When I first started trading i put bb's on everything, but after a while i could never get the hang of it. For my own amusement im going to post three charts...the stock is unknown. two are on a 5min, and the other is a daily. I cut some of the chart off, right before a major move. I want you to be able to tell me from looking at these, whats the trade at this point? for those that trade bb's, tell me what to do on these charts, now that price is on the hard right edge
I'm thinking the 1st one probably hit close to the middle band and bounced back down The 3rd one could maybe move up a little more I'm not really sure on the 2nd. It's looking weak so i wouldnt be surprised if it topped out there But these are more guesses than anything and these are points where i normally wouldnt try to use them. I like to use the 15 minute chart and place my order when the close of a bar has reversed fully back inside the bands More like in previous points on your charts